| Voss v Netherlands Ins. Co. |
| 2012 NY Slip Op 04852 [96 AD3d 1543] |
| June 15, 2012 |
| Appellate Division, Fourth Department |
| Deborah Voss et al., Appellants, v The Netherlands InsuranceCompany et al., Defendants, and CH Insurance Brokerage Services, Co., Inc.,Respondent. |
—[*1] Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Albany (Elizabeth Grogan of counsel),for defendant-respondent.
Appeal from an order of the Supreme Court, Onondaga County (Deborah H. Karalunas, J.),entered January 11, 2011. The order granted the motion of defendant CH Insurance BrokerageServices, Co., Inc. for summary judgment dismissing the amended complaint against it.
It is hereby ordered that the order so appealed from is affirmed without costs.
Memorandum: Plaintiffs commenced this action alleging, inter alia, negligence and breach ofcontract in connection with business interruption coverage that CH Insurance BrokerageServices, Co., Inc. (defendant) obtained for plaintiffs from former defendant, Peerless InsuranceCompany, for which defendant the Netherlands Insurance Company was substituted bystipulation of the parties after the action was commenced. We conclude that Supreme Courtproperly granted defendant's motion for summary judgment dismissing the amended complaintagainst it, but our reasoning differs from that of the court. Contrary to the court's determination,we agree with plaintiffs that defendant failed to establish its entitlement to judgment dismissingthe amended complaint on the ground that no special relationship existed between defendant andplaintiffs (see generally Murphy v Kuhn, 90 NY2d 266, 271 [1997]). In support of itsmotion, defendant submitted the deposition testimony of Deborah Voss (plaintiff), the soleshareholder and principal of the corporate plaintiffs, stating that defendant's representativereviewed, inter alia, the types of businesses to be insured as well as sales figures, and that hethereafter presented her with a proposal for insurance coverage, which included $75,000 perincident for business interruption insurance. When plaintiff questioned whether the amount wassufficient, defendant's representative assured her that it was and that defendant would review thecoverage annually and recommend adjustments as the businesses grew. Thus, we conclude thatdefendant's own submission supports the contention that plaintiff relied upon defendant'sexpertise and assurance regarding the appropriate level of insurance to protect the corporate[*2]plaintiffs in the event of a loss (cf. Hoffend & Sons, Inc. v Rose & Kiernan,Inc., 7 NY3d 152, 157-158 [2006]).
As noted, however, we nevertheless conclude that the court properly granted defendant'smotion. The commercial building that housed the corporate plaintiffs, as well as a corporatetenant, was damaged on three separate occasions in connection with water leaking from the roof,which caused a portion of the roof to collapse on two of those occasions. The first two incidentsoccurred while the limit for business interruption coverage was $75,000, and the third incidentoccurred after the policy was renewed and the coverage for business interruption had beenreduced to $30,000. Plaintiffs alleged in their amended complaint and supplemental bill ofparticulars that defendant failed to provide adequate coverage and was negligent in reducing thecoverage. However, the renewed policy was in effect for approximately nine months at the timeof the third loss, and "[p]laintiff[s are] charged with conclusive presumptive knowledge of theterms and limits of [the policy]" (Hoffend & Sons, Inc., 19 AD3d 1056, 1057 [2005], affd onother grounds 7 NY3d 152 [2006] [internal quotation marks omitted]). Thus, the cause ofaction against defendant for negligence and breach of contract with respect to the reduced policylimit is defeated as a matter of law (see id. at 1057-1058). Indeed, plaintiff admitted thatshe knew that the policy limit had been reduced from $75,000 to $30,000 and that, although shehad contacted defendant to question the reduction, she did not hear back from defendant'srepresentative and did not again contact defendant's representatives.
We note that plaintiff testified at her deposition that plaintiffs received only $3,197 on theclaim for business interruption for the first incident and $30,000 for the second incident, and thatno funds were paid on the claim for business interruption for the third incident. Plaintiff testifiedthat, if the policy limit of $75,000 had been paid in a timely manner for each of the first twoincidents, the plaintiff corporations would have remained operational. We therefore concludethat, even in the event that defendant negligently failed to obtain sufficient business interruptioncoverage for plaintiffs, any such negligence is not a proximate cause of plaintiffs' damages as amatter of law (see generally Derdiarian v Felix Contr. Corp., 51 NY2d 308, 315 [1980],rearg denied 52 NY2d 784, 829 [1980]).
All concur except Carni, J., who dissents and votes to reverse in accordance with thefollowing memorandum.
Carni, J. (dissenting). I respectfully dissent and would deny the motion of CH InsuranceBrokerage Services, Co., Inc. (defendant) for summary judgment dismissing the amendedcomplaint against it. At the outset, I note that I concur with my colleagues that "defendant's ownsubmission supports the contention that [Deborah Voss (plaintiff)] relied upon defendant'sexpertise and assurance regarding the appropriate level of insurance to protect the corporateplaintiffs in the event of a loss." Thus, I further concur with my colleagues that defendant failedto establish its entitlement to judgment dismissing the amended complaint on the ground that nospecial relationship existed between defendant and plaintiffs (see generally Murphy vKuhn, 90 NY2d 266, 271 [1997]). However, it is at this juncture that the majority and I partways.
Given my agreement with the majority that plaintiffs' assertion of a "special relationship"with defendant remains viable, it thus follows that plaintiffs may be found to have relied upondefendant's expertise and assurance regarding the appropriate level of insurance to protect thecorporate plaintiffs in the event of a loss. It is therefore incongruous to conclude, simultaneously,as does the majority, that the cause of action against defendant for negligence and breach ofcontract is defeated as a matter of law because the renewed policy was in effect forapproximately nine months at the time of the third loss, and "[p]laintiff[s are] charged withconclusive presumptive knowledge of the terms and limits of [the policy]" (Hoffend & Sons,Inc. v Rose & Kiernan, Inc., 19 AD3d 1056, 1057 [2005] [internal quotation marks omitted],affd on other grounds 7 NY3d 152 [2006]). Rather, if plaintiffs in fact relied upondefendant's expertise and [*3]assurance regarding the appropriatelevel of insurance coverage, "it is no answer for the broker to argue, as an insurer might, that theinsured has an obligation to read the policy" (Baseball Off. of Commr. v Marsh &McLennan, 295 AD2d 73, 82 [2002]; see Hersch v DeWitt Stern Group, Inc., 43 AD3d 644, 645 [2007]).Indeed, the doctrine that an insured is presumed to know the terms and limits of the policy has itsgenesis in actions against insurers—not agents with whom a special relationshipwith the insured has been alleged or established (see Metzger v Aetna Ins. Co., 227 NY411, 414-417 [1920]).
I also respectfully disagree with the majority's conclusion concerning the dispositive effect ofthe testimony of plaintiff that, if the $75,000 policy limits had been paid in a timely manner afterthe first two incidents, the plaintiff corporations would have remained operational. The policy atissue provided "BUSINESS INCOME (AND EXTRA EXPENSE) COVERAGE." Under thepolicy, the insured's "Business Income loss" is determined by the net income of the businessbefore the direct physical loss or damage occurred. The policy covers business income losssustained due to the necessary suspension of "operations" during the "period of restoration"caused by the physical loss to the business property.
However, the policy clearly contemplates the possibility that the insured might not resume"operations" after the loss. Specifically, the policy provides, "If you do not resume 'operations,' ordo not resume 'operations' as quickly as possible, we will pay based on the length of time itwould have taken to resume 'operations' as quickly as possible." Thus, neither the policy nor thebenefits paid thereunder guarantee or insure that the insured business will once again becomeoperational, profitable or sustainable. Instead, the policy insures against losing net businessincome and incurring extra expenses during the period when "operations" are suspended orduring a reasonable time in which to "resume operations" (see generally Buffalo El. Co. vPrussian Natl. Ins. Co., 64 App Div 182, 185-187 [1901], affd 171 NY 25 [1902]). Ifand when the business resumes operations, the insurer's obligation to pay net income benefitsterminates (see Royal Indem. Co. vRetail Brand Alliance, Inc., 33 AD3d 392, 393 [2006], lv denied 8 NY3d 813[2007], 11 NY3d 705 [2008]). However, if the business does not resume operations, the insuredis entitled to business interruption coverage for the period of time it would have reasonably takento resume operations (see Children'sPlace Retail Stores, Inc. v Federal Ins. Co., 37 AD3d 243 [2007]), and the duration ofthat time period ordinarily constitutes an issue of fact (see Maple Leaf Motor Lodge vAllstate Ins. Co., 53 AD2d 1045, 1046 [1976]). Thus, an insured may receive payment ofpolicy benefits for business interruption coverage and never resume operations without violatingthe terms and conditions of the policy (see DiLeo v United States Fid. & Guar. Co., 109Ill App 2d 28, 42-43, 248 NE2d 669, 676 [1969]; see also National Union Fire Ins. Co. vScandia of Hialeah, Inc., 414 So 2d 533, 535 [1982]). There is no requirement in the policythat the insured must resume operations in order to recover business interruption losses (see BA Props., Inc. v Aetna Cas. & Sur. Co., 273 F Supp 2d 673, 685 [2003]). Indeed, the claimsanalyst for the insurer testified at his deposition that business income loss payments made to aninsured could be spent "on anything."
Plaintiffs' action against defendant arises from the failure to procure business interruptioncoverage limits in an amount consistent with the nature of the business, and its revenue, expenseand net income performance history. Whether defendant was negligent in failing to do so ismeasured not by whether plaintiffs would have resumed operations if timely paid the full butallegedly insufficient limits after each of the first two incidents. Instead, it is measured by theamount of plaintiffs' business income losses when compared to the policy limits determined andprocured by defendant. Thus, I conclude that whether plaintiffs actually resumed operations isirrelevant to the proximate cause analysis. As the movant seeking summary judgment dismissingthe amended complaint, defendant had to establish that the policy limits were sufficient to coverthe amount of plaintiffs' business income losses during the relevant policy periods (seegenerally Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). Defendant did notmeet that burden and [*4]thus is not entitled to summaryjudgment.
Moreover, in my view the record is confusing and inconclusive with respect to the amount ofplaintiffs' business interruption losses for each incident. However, the record does reflect that,with respect to the second incident, plaintiffs' claimed business income loss was the sum of$449,724. Obviously, the disparity between that loss and the $75,000 policy limit would providethe necessary proximate cause for an award of damages with respect to the second incident in theevent that plaintiffs were successful in convincing the trier of fact that the aforementioned"special relationship" existed and that defendant was negligent. Present—Scudder, P.J.,Smith, Carni and Sconiers, JJ.