One of the significant coverage issues that arose from Storm Sandy was whether property insurance policies provided coverage for loss of business income arising from the loss of electrical power. Insurers typically offer endorsements that provide coverage for this type of loss in limited circumstances — only where the power failure is caused by direct physical loss or damage by a covered cause of loss to certain types of equipment owned by the utility that is used to supply electricity to the insured premises. The list of equipment might include utility generating plants, switching stations, substations, transformers and transmission lines (but typically not overhead transmission lines). In applying this policy provision to the circumstances of Storm Sandy, key issues included: (1) whether the power failure was caused by direct physical loss to one of the specified types of equipment; and, (2) whether the damage to the equipment was caused by wind (typically a covered peril) or flood (typically an excluded peril). The relevant information on those issues is largely in the possession of the utility, so insurers and insureds often need to obtain information from the utility service through published reports and/or discovery from the utility.

Judge Cote of the Southern District of New York recently addressed this type of coverage issue in Johnson Gallagher Magliery, LLC v. Charter Oak Fire Ins. Co., No. 1:13-cv-00866 (DLC), slip op. (S.D.N.Y. Mar. 18, 2014). The insured is a law firm with offices in lower Manhattan, serviced by Con Edison’s Bowling Green network. Con Edison shut off the power preemptively to that network on October 29, 2012, as the flood waters from Sandy were approaching Con Edison equipment. After flood damage to Con Edison equipment was repaired, Con Edison was able to re-energize the Bowling Green network on November 3. The building housing the insured law firm, however, was not able to restore power until November 11.

The policy provided, by endorsement, the type of limited coverage for loss of business income caused by a power failure that is described above. Charter Oak (a Travelers subsidiary) sought a partial summary judgment ruling that there was no coverage for power failure-related business income losses under the endorsement. Charter Oak relied on a deposition from Con Edison regarding the preemptive shutdown and the flood damage to Con Edison equipment. The court granted partial summary judgment in favor of Charter Oak with respect to the period of time while the Bowling Green network was down. The court first held that, with respect to the initial period of hours between when Con Edison preemptively shut down the power and when the flood waters damaged Con Edison equipment, there was no coverage because that portion of the loss was not caused by direct physical loss, and was also excluded by the policy’s “Acts or Decisions” exclusion (which excludes a loss caused by an act or decision of an organization or government body).

Second, the court held that the policy’s “Water” exclusion, which excluded loss caused directly or indirectly by flood or overflow from a body of water, barred coverage for the period of time after the flood waters damaged Con Edison’s equipment until Con Edison was able to reenergize the Bowling Green network. The court rejected the insured’s argument that coverage was available under the endorsement because the flood waters contained other hazards, such as fuel, kerosene and sewage. The court explained that “[b]ecause any damage from fuel or kerosene would have been associated with flooding, it still falls under the Water exclusion, which includes both direct and indirect damage resulting from water.” Slip op. at 19. The court cited testimony from Con Edison that all of the damage to its equipment was due to water. Id. at 21. The court therefore granted partial summary judgment in favor of Charter Oak with respect to coverage under the endorsement for lost business income from October 29, 2012 (the date that Sandy struck New York) until 1:33 a.m. on November 3, 2012 (when Con Edison reenergized the Bowling Green network).

Numerous businesses in Manhattan and the surrounding areas were faced with power failures to their offices arising from Storm Sandy, and insurers were faced with making many coverage decisions on those losses post-Sandy. When these coverage decisions are litigated, each case will need to be evaluated based on its own facts, but insurers may find the Johnson Gallagher decision helpful to them in future litigation on this issue.

SPECIAL DISCLAIMER: Because the Johnson Gallagher case is one in which Robinson & Cole LLP represented the insurer, we reiterate that the intent of this blog is to serve as an informational resource for readers, not advertising for our legal services. Every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction. Case results depend upon a variety of factors unique to each case. Case results do not guarantee or predict a similar result in any future case undertaken by the same lawyer(s). This blog does not constitute legal advice and you should always consult your own lawyer about your own case.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.