We are now just over 18 months removed from Superstorm Sandy, and the first waves of decisions are starting to trickle in from the ensuing litigation.  Insurers in the greater New York City area had the heavy task of adjusting a prodigious number of property damage and business interruption claims, and not surprisingly, insureds and insurers have had some disagreements along the way.

The Southern District of New York recently ruled on a business interruption claim made by a law firm in lower Manhattan, which lost power for five days and was unable to function.  Con Edison had preemptively shut off power in anticipation of flooding in order to mitigate against greater potential damage and allow for easier post-storm power restoration.

Among the buildings that lost power was 40 Wall Street, just a few blocks away from WCM’s New York office.  (Despite the loss of power, WCM managed to function, largely via text messaging and whatever power sources individual attorneys could access…. Not that we’re bragging…)

The Court granted the summary judgment motion of Great Northern, determining that there was no coverage for business interruption because there was no “direct physical loss.”   The Court reasoned that “’direct physical loss or damage… unambiguously … requires some form of actual, physical damage to the insured premises to trigger loss of business income and extra expense coverage.”  Because the business was interrupted by an intentional  power outage, as opposed to physical damage, business interruption coverage was never triggered.  This decision came down to the Court’s admittedly narrow reading of the flood exclusion, which distinguished between damage caused by flood, as opposed to a loss caused by the power outage in the prevention of future flooding.

Interestingly, the Court noted that, should its narrow interpretation of the flood exclusion be overturned on appeal, such a reversal would result in the plaintiff law firm prevailing in the suit.  This dicta at the end of the decision strikes us as an invitation to appeal the Court’s ruling, along with a veiled suggestion to the higher court.

Thanks to Brian Gibbons for his contribution.

For more information, contact Denise Fontana Ricci at