Forestview the Beautiful Followed in New York
February, 2006
In CM Report of Recent Decisions, 2005, Vol. 4, we reported on Forestview The Beautiful, Inc. v. All Nation Ins. Co., 2005 Minn.App. LEXIS 773, 2005 WL 2649467, in which a Minnesota appellate court ruled that in order for business interruption coverage to attach in a property insurance context, there must be a total cessation of occupancy of the subject property.
We now report that a New York trial court has followed the holding in Forestview the Beautiful. In 11 Essex St. Corp. v. Tower Ins. Co. of New York, 12/15/2005 N.Y.L.J. 19, (col. 1), the insured sought to recover for property damage to its building and for loss of business income under its property policy. The insured suffered damages because a contractor removed earth and bedrock from the neighboring property, but did not properly shore-up the subject property. The insurer denied property damage coverage based on a grab-bag of policy exclusions, and the insured sued.
In interpreting the business income coverage in the Tower Insurance policy, Justice Goodman held that the business interruption coverage did not attach because the property remained partially occupied after the loss. In considering the insured’s alleged business income losses, the court ruled that the loss was not covered because Plaintiff did not sustain a “necessary suspension” of its business.
The business income portion of the policy in 11 Essex St. Corp. provided, in relevant part, as follows:
(1) Business Income
We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. We will only pay for loss of Business Income that you sustain during the ‘period of restoration’ and that occurs within 12 consecutive months after the date of direct physical loss or damage.’
There were tenants in the building during the alleged period of business interruption. The insured maintained that it was unable to rent several of the apartments, and thereby suffered a loss of approximately $10,000.00 per month.
The court held that the insured failed to raise an issue of fact regarding whether it suffered a “necessary suspension” of its business operations. The court ruled that, “[t]he language of the subject policy clearly and unambiguously provides that for business interruption coverage to be triggered, there must be a ‘necessary suspension,’ i.e., a total interruption or cessation.” citing 54th Street Ltd. Partners, L.P. v. Fidelity and Guar. Ins. Co., 306 A.D.2d 67, 67 (1st Dep’t 2003).
The court ruled that because other tenants remained in the building, the insured only suffered a partial cessation of its business. The court agreed with the insurer’s denial of coverage. In support of its ruling, the court cited Forestview The Beautiful, Inc. v. All Nation Ins. Co., 2005 Minn. App. LEXIS 773, 2005 WL 2649467, as well as Royal Indem. Ins. Co. v. Mikob Properties, Inc., 940 F.Supp. 155, 160 (SD Tex 1996).
Both Forestview the Beautiful and 11 Essex St. held that despite some lost income from the failure to lease the apartments, the insured did not suffer a “necessary suspension” of business as required by the respective policies. Because the insured’s business at the subject property was not completely suspended, there was no business income coverage under the policy.
Learning Point:
11 Essex St. is a decision by a trial court in New York, and is therefore not controlling authority in the state. However, since the trial court cited cases from other jurisdictions to support its holding, it appears that there may be a trend of courts to agree with insurers that partial cessation of business does not constitute a business interruption claim. •
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