OPINION & ORDER
This diversity action arises out of the widespread power outages that occurred in and around New York City during and after Hurricane Sandy. On October 29, 2012, in anticipation of storm-related flooding, utility provider Consolidated Edison
Before the Court now are the parties’ cross-motions for summary judgment. For the reasons that follow, Great Northern’s motion is granted and Newman Myers’s motion is denied.
I. Background
A. The Parties
Newman Myers is a law firm with its office and principal place of business at 40 Wall Street, New York, New York 10005 (the “40 Wall Street Building”). Stip. Facts ¶¶ 1-2.
Great Northern is an insurance company incorporated under the laws of Indiana, with its principal place of business in New Jersey. Id. ¶ 3.
B. Facts
At all relevant times, Con Edison was responsible for supplying electrical power services to the 40 Wall Street Building. In late October 2012, as Hurricane Sandy headed toward the New York metropolitan area, Con Ed identified power supply and distribution centers that potentially could be damaged by flooding. It monitored those centers as the storm approached. See Stip. Facts Ex. X2 (Con Ed Report on Preparation and System Restoration Performance: Sandy, October 29 through November 12, 2012), at 5.
At around 6:42 p.m. on October 29, 2012, floodwaters began to rise. Before the stations could flood, Con Ed preemptively shut off the power to three utility service networks, including the Bowling Green Network, which provided service to the 40 Wall Street Building. Id. at 6-7. Con Ed did so because, were power to remain on in the event of a flood at a power distribution center, the ensuing damage to Con Ed’s equipment would be much worse than if the power had been shut off. Shutting off the power thus preserved the integrity of the utility system, allowing power to be restored to affected areas more quickly following the storm. See id. at 5-7.
As a result, the 40 Wall Street Building was without full power from October 29 until November 3, 2012. During that time, there was no electricity or elevator service in the building. Stip. Facts ¶¶ 27-29, 35. Although access to the building was not formally blocked, id. ¶ 30, Newman Myers employees reported trying to enter the building on November 1 and 3, only to be informed that “the Building was closed due to a loss of power and that building management was waiting for Con Edison to
On November 3, 2012, power was partially restored to the 40 Wall Street Building, and elevator service was restored up to the eighth floor. Id. ¶ 33. Power and elevator service were fully restored to the building on November 4, 2012. Id. ¶ 35. Newman Myers resumed normal business operations on November 5, 2012. Id. ¶ 36. The 40 Wall Street Building itself did not sustain any flooding or physical damage during the storm. Id. ¶ 13.
On or about November 13, 2012, Newman Myers filed a claim under its commercial property insurance policy with Great Northern, for loss of business income and extra expenses it had incurred as a result of the loss of power to its office between October 29 and November 3, 2012.
C. Procedural History
On February 27, 2013, Newman Myers filed this action in New York State Court. See Newman Myers Kreines Gross Harris, P.C. v. Great N. Ins. Co., Index No. 151774/2013 (N.Y.Sup.Ct.) (filed Feb. 27, 2013); Dkt. 1 (“Notice of Removal”) ¶ 1. Newman Myers’s Complaint alleges, inter alia, that Great Northern breached the insurance contract by refusing to pay for covered losses under the Policy, to wit, loss of business income and extra expenses resulting from Newman Myers’s inability to access its office between October 29 and November 3, 2012. See Dkt. 1 Ex. 1 (“Compl.”). The Complaint seeks “a declaration that the Great Northern Policy affords coverage to Newman Myers for its loss of business income, expenses, costs and attorney’s fees and interest from the date of loss which is in excess of $125,000,” id. ¶ 48, as well as damages, id. ¶ 53.
On April 2, 2013, Great Northern removed the action to this Court, based on diversity jurisdiction. . Notice of Removal ¶ 3. On January 7 and 8, 2014, respectively, the parties cross-moved for summary judgment, Dkt. 18, 22, and filed supporting memoranda of law, Dkt. 21 (“Def. Br.”), 23 (“PI. Br.”). On January 28, 2014, the parties filed memoranda of law in opposition. Dkt. 24 (“PI. Opp. Br.”), 26 (“Def. Opp. Br.”). On February 14, 2014, the Court heard argument.
II. Legal Standard
To prevail on a motion for summary judgment, the movant must “show[ ] that there is no genuine dispute as to any material fact and the movant is entitled to
To survive a summary judgment motion, the opposing party must establish a genuine issue of fact by “citing to particular parts of materials in the record.” Fed. R.Civ.P. 56(c)(1); see also Wright v. Goord,
III. Discussion
The sole issue presented by the parties’ cross-motions for summary judgment is whether Newman Myers suffered a covered loss under the Policy as a result of the power outage at its 40 Wall Street office. This is a pure question of law for the Court. There are no material factual disputes, as counsel for both parties agreed at argument. See Dkt. 30 (Transcript of February 14, 2014 Oral Argument (“Tr.”)) 2-5. The Court need only determine whether the Policy language permits recovery under the undisputed facts.
The Court will address the parties’ competing arguments as to this issue after reviewing the applicable principles of New York insurance law.
A. New York Insurance Law
“The initial interpretation of a contract is a matter of law for the court to decide.” Morgan Stanley Grp. Inc. v. New England Ins. Co.,
“It is well settled that ‘[a] contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion.’ ” White v. Cont’l Cas. Co.,
It is “well-established ... that a policyholder bears the initial burden of showing that the insurance contract covers the loss.” Roundabout Theatre Co.,
B. Newman Myers’ Claim of Coverage
The threshold question on the parties’ cross-motions for summary judgment, therefore, is whether Newman Myers has carried its burden of showing that the Policy provides coverage for its claimed losses. Specifically, Newman Myers seeks compensation for loss of business income and extra expenses incurred as a result of its inability to access its office between October 29 and November 3, 2012, during the power outage at the 40 Wall Street Building brought about by Hurricane Sandy.
As to this issue, the decisive question is whether the insured premises experienced “direct physical loss or damage.” The Policy’s “Business Income With Extra Expense Insurance For Law Firms” section provides the insured coverage for loss of business income and extra expenses in the event of “direct physical loss or damage by a covered peril to property.” Policy at CC 00108. And the Policy’s other business impairment coverage provisions, which provide additional coverage for loss of business income and extra expenses in specified circumstances, are subject to similar qualifications. Newman Myers appears to claim coverage under two such provisions: the “Ingress And Egress” provision and the “Loss of Utilities” provision. The Ingress And Egress provision affords additional coverage for business income
Newman Myers concedes that its office at 40 Wall Street did not sustain any structural damage as a result of Hurricane Sandy. See Stip. Facts ¶¶ 13, 14. Newman Myers nevertheless argues that both its office at 40 Wall Street and the Con Ed facility at Bowling Green suffered “direct physical loss or damage” within the meaning of the Policy. It contends that the phrase “direct physical loss or damage,” construed in line with the reasonable expectations of the insured, does not require actual structural damage to the covered premises. Instead, it argues, there need only have been “an initial satisfactory state that was changed by some external event into an unsatisfactory state.” PI. Opp. Br. 13 (internal quotation marks omitted). Here, Newman Myers argues (1) the “cessation of electrical services to 40 Wall Street can reasonably be interpreted as ‘direct physical loss or damage’ ” because it made “ingress to and egress from the 26th floor of 40 Wall Street impossible,” PI. Br. 9 (bold face omitted); and (2) “[t]he Con Edison Facility at Bowling Green sustained a ‘direct physical loss or damage’ in the week that followed Hurricane Sandy” because the “threat of structural damage” posed by the anticipated flood transformed the facility from “an initial satisfactory state ... into an unsatisfactory state,” PI. Opp. Br. 15 (bold face omitted).
In arguing that the policy term “direct physical loss or damage” is met by the preemptive closure of its building in preparation for a coming storm, Newman Myers relies on several out-of-state decisions. Each held the presence of fumes or noxious gas in a workspace to be “direct physical loss or damage,” because the property at issue was rendered unusable or unsatisfactory for its intended purpose. In TRAVCO Ins. Co. v. Ward,
Newman Myers’s cases are, however, distinguishable. In each there was some compromise to the physical integrity of the workplace. To be sure, the cases involving odors, noxious fumes, and water contamination did not involve tangible, structural damage to the architecture of the premises. But the critical policy term at issue, requiring “physical loss or damage,” does not require that the physical loss or damage be tangible, structural or even visible. The invasions of noxious or toxic gases in TRAVCO and Essex, rendering the premises unusable or uninhabitable, were held to suffice, because even invisible fumes can represent a form of physical damage. The contamination of well water in Hardinger, similarly involved physical damage, just not structural — there, to the building’s water supply. Finally, the rockfall in Murray, although itself not having struck the premises, revealed a palpable future risk of physical damage, from another rockfall. Whether or not these cases were each correctly decided, each involved the elo-sure of a building due to either a physical change for the worse in the premises (TRAVCO, Essex, or Hardinger) or a newly discovered risk to the its physical integrity (Murray). Those characteristics are not presented by Con Ed’s preemptive decision to shut off power to several utility service networks in order to safeguard its own system and equipment.
More apposite is New York case authority, and it favors the insurer here.
The theater company brought suit, and, initially, was awarded summary judgment in New York State Supreme Court as to
The critical policy language here— “direct physical loss or damage” — similarly, and unambiguously, requires some form of actual, physical damage to the insured premises to trigger loss of business income and extra expense coverage. Newman Myers simply cannot show any such loss or damage to the 40 Wall Street Building as a result of either (1) its inability to access its office from October 29 to November 3, 2012, or (2) Con Ed’s decision to shut off the power to the Bowling Green network. The words “direct” and “physical,” which modify the phrase “loss or damage,” ordinarily connote actual, demonstrable harm of some form to the premises itself, rather than forced closure of the premises for reasons exogenous to the premises themselves, or the adverse business consequences that flow from such closure. See Roundabout Theatre Co.,
Although not necessary to the Court’s decision on this point, other provisions of the policy at issue here support this interpretation. Under the “Loss of Utilities” provision, and under the general “Premises Coverage” provision of the “Business Income With Extra Expense For Law Firms” section, loss of business income and extra expense coverage is limited to “the period of restoration,” not to exceed the applicable Limit of Insurance.
For these reasons, Newman Myers has not met its burden of showing that the
C. Flood Exclusion
Great Northern advances an alternative argument in support of summary judgment in its favor. It argues that, even if there were “direct physical loss or damage” to a covered premises as a result of the Hurricane Sandy-related power outage, Newman Myers still could not recover, because the Policy expressly excludes coverage for loss or damage caused by flooding. Def. Br. 11-16. Newman Myers disagrees, arguing that the flood exclusion does not apply under the circumstances here, ie., where the harm (Con Ed’s decision to shut down power to lower Manhattan), was caused not by flooding itself, but by anticipated flooding at the Bowling Green facility. See PI. Br. 7-8.
In light of the Court’s ruling that there was no “direct physical loss or damage” and thus no covered loss under the Policy, the Court need not decide whether the flood exclusion indeed applies here. Cf. Roundabout Theatre Co.,
In the Court’s judgment, Great Northern has not carried its burden to show that the exclusion applies. Under New York law, “before an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation.” Seaboard Sur. Co. v. Gillette Co.,
By their terms, the “Loss of Utilities” and “Ingress And Egress” provisions of the Policy at issue here exclude coverage where “the direct physical loss or damage is caused by or results from earthquake or flood.” Policy at CC 00114, CC00109 (bold face omitted). The Policy also contains a separate flood exclusion provision, which excludes coverage for “loss or damage caused by or resulting from,” inter alia, “waves, tidal water or tidal waves” or “rising, overflowing or breaking of any boundary” of any natural or man-made body of water. Id. at CC 00087.
Here, it is undisputed that Con Ed preemptively shut down the power to the Bowling Green Network as Hurricane Sandy made its approach, before any flood damage was actually sustained at its Bowling Green facility. Con Ed’s was a precautionary measure, to maintain the integrity of the utility network in the event of future flooding. Thus, the power outage Newman Myers complains of was not directly caused by flood, as that term is commonly understood. Although Great Northern argues that “flooding” and “concerns of imminent flood damage” were the reason for “the preemptive shutdown of power” to the Bowling Green Network,
CONCLUSION
For the foregoing reasons, Great Northern’s motion for summary judgment is granted and Newman Myers’s motion is denied. The Clerk of Court is respectfully directed to terminate the motions pending at Dkt. 18 and 22, and to close this case.
SO ORDERED.
Notes
. The Court’s account of the underlying facts of this case is drawn primarily from the parties’ Joint Stipulation as to Record on Rule 56 Motions ("Stip. Facts”) (Dkt. 16), and exhibits attached thereto. Citations to the parties' 56.1 Statement incorporate by reference the documents cited therein.
. The Policy’s Coverage Summary lists “14 WALL ST” as the insured premises, see Policy at CC 00057, rather than 40 Wall Street, although the parties agree the insured premises were 40 Wall Street. See, e.g., Stip. Facts ¶¶ 2, 10. In light of the parties’ agreement, the Court treats the coverage summary as erroneous and treats the covered premises as 40 Wall Street.
. Newman Myers objected to the admissibility of certain documents submitted by Great Northern in support of its summary judgment motion, see Tr. at 7-8; see also Dkt. 28, but those did not give rise to disputed issues of material fact relevant to the resolution of the parties’ cross-motions for summary judgment.
. Although the parties’ briefs do not directly address choice of law, they apply New York law, see, e.g., PL Br. 8, Def. Br. 8-10, and it is clear that New York law governs. The Policy was executed in New York, on behalf of a New York-based entity, and covers property in New York. See Compl. ¶¶ 1-4. See Philadelphia Parking Auth. v. Federal Ins. Co.,
. At argument, Newman Myers' counsel conceded that no New York cases involving a policy term requiring "physical loss or damage” support its position. See Tr. 12, 13.
. Under the "Ingress And Egress” provision, coverage is not limited to the "period of restoration,” but rather to a period of "thirty (30) consecutive days ... or whenever your business income coverage ends, whichever occurs first.” Policy at CC 00109. However, the term "direct physical loss or damage,” which appears in the "Ingress And Egress” provision, as well as the "Loss of Utilities” provision, should be construed to have a consistent meaning throughout the Policy. See Two Farms, Inc. v. Greenwich Ins. Co.,