were forced to vacate their premises, as long as the
order was related to a covered cause of loss.
In other cities, evacuated policyholders are facing challenges proving up orders of evacuation. In
those areas, local police made rounds forcing those
in harm’s way to evacuate. With no written record
of the evacuation order, policyholders are resorting
to obtaining affidavits from local authorities concerning the forced evacuations in order to trigger
civil authority coverage.
Service Interruption Coverage and
Ensuing Loss
Another form of “off premises” time element coverage relied on by many businesses in the wake of
Superstorm Sandy is known as service interruption
coverage. This covers business interruption losses
resulting from damage to personal property of a
utility necessary to supply the insured premises
with things such as power, water, communication,
natural gas, sewage and Internet access. Typically,
the property damage at the utility must be caused
by a covered cause of loss under the policy.
In some areas of New York City and other locations
affected by Sandy, certain utilities preemptively
shut down power in order to preserve the integrity
of the electrical system during the storm. While
there is little authority on the subject, there is some
support that a shutdown of this nature constitutes
a covered event under a property insurance policy.
See Wakefern Food Corp. v. Liberty Mut. Fire Ins.
Co., 406 N.J. Super. 524, 540, 968 A.2d 724, 734
(App. Div. 2009) (blackout case; holding that a
power plant’s inability to perform its essential function of providing electricity constitutes “physical
loss or damage” for purposes of coverage under a
property insurance policy). Some insurance companies, however, are challenging coverage.
Moreover, although it has been widely reported
in the media that a massive transformer explosion occurred at the 14th Street Con Edison
plant, knocking out power to tens of thousands
of customers in Lower Manhattan on the evening
of October 29, 2012, many insurance companies
have argued that this was mere electrical arcing
caused by flood, which is excluded under many
policies, not an “ensuing loss” in the form of an
explosion that triggered service interruption
16 Enforce: The Insurance Policy Enforcement Journal
coverage. That issue is currently making its way
through the New York courts in a number of different cases involving losses of several millions
of dollars.
Conclusion
It should hardly come as a surprise that a storm
as massive and unique as Sandy has given rise to
unique and complex insurance coverage issues.
For some claimants, these issues are being negotiated behind the scenes and out of the courts, while
other claimants, typically those with more substantial losses, have been forced to bring suit to have
these and other issues resolved. With perseverance
and strong coverage counsel, policyholders stand
an excellent chance of succeeding on the unique
coverage issues arising out of Superstorm Sandy. s
Finley Harckham is a senior litigation shareholder
in Anderson Kill’s New York office and serves on the
firm’s Executive Committee. Mr. Harckham regularly
represents and advises corporate policyholders in
insurance coverage matters. He has successfully
litigated, arbitrated and settled hundreds of complex
coverage claims. His areas of particular focus include
property loss, business interruption, directors and
officers liability, construction, professional liability
and general liability claims.
212-278-1543
[email protected]
Dennis J. Artese is a shareholder in Anderson
Kill’s New York office. His practice concentrates on
insurance recovery litigation, with an emphasis on
securing insurance coverage for first-party property
losses, third-party liability claims and construction
disputes. Mr. Artese has recovered millions of dollars
of insurance proceeds on behalf of policyholders in
connection with claims for fire losses, equipment
breakdowns, property damage and business income
losses resulting from natural disasters, aircraft
property damage, construction liabilities, asbestos
bodily injuries and economic losses resulting from
political corruption, among others. Additionally,
Mr. Artese represents a wide variety of clients in
general commercial disputes and complex Chapter
11 bankruptcy litigations.
212-278-1246
[email protected]