One Liberty Plaza (NYLJ/Rick Kopstein)
Cleary Gottlieb Steen & Hamilton claims it lost more than $3 million in business income as a result of Superstorm Sandy and is asking a Manhattan Supreme Court judge to force its insurance company to pay up.
“Rather than make good on its obligations to its insureds, the insurer has adopted an untenable reading of the policy to disclaim coverage for the insured’s resulting loss of business income,” Cleary said in its motion for partial summary judgment in a suit filed in November.
Several midsize and small firms have sued their insurers over Sandy claims, but Cleary Gottlieb is among the largest New York firms to pursue litigation.
Cleary said its main office at One Liberty Plaza and two ancillary downtown offices, 22 Cortlandt St. and 83 Maiden Lane, lost electricity, steam and telephone service after Hurricane Sandy caused a storm surge in fall 2012, according to Cleary Gottlieb v. Federal Insurance Co., 653829/2013 in Manhattan Supreme Court (See Complaint).
The firm said its main office was closed for about three and a half days and it continued to be affected by the loss of utilities. In all, Cleary, which generated about $1.13 billion in gross revenue in 2012, according to The American Lawyer, said the office closures resulted in a loss of more than $3 million in business income.
The firm paid insurer Federal Insurance Co. “several hundred thousand dollars in premiums” for a policy that covered lost business caused by a loss of utilities due to flooding, said Cleary partner Jonathan Blackman in court papers.
Cleary said the related policy limit is $6.5 million.
The suit before Justice Marcy Friedman (See Profile) against Federal Insurance Co., a Chubb Corp. subsidiary, claims breach of contract. At issue is whether an endorsement to the policy voids a flood exclusion.
The policy provides no coverage if the physical loss or damage is caused by flood, but Cleary said the flood exclusion is “deleted” and coverage for flood damage is restored by a controlling policy endorsement.
“Although the insurer might have chosen a more straightforward manner in which to accomplish this purpose, walking step by step through the various provisions in turn makes clear that the policy does provide coverage for the insured’s business income resulting from loss of utilities caused by flood,” Cleary said in court papers.
If Federal Insurance wanted to omit this coverage, the firm said, it was required to use clear and unambiguous language, “not bury the alleged (but in fact, non-existent) disclaimer in a series of deletions and reinsertions whose most logical reading provides for coverage.”
The insurer argues in court papers that the flood endorsement provides the coverage for “certain flood losses, but not for loss of utilities.”
The flood exclusion “always remained in effect” for the policy’s loss of utilities, said John Nocera, John Foudy and Scott Kantor of Rosner Nocera & Ragone who represent the insurer, in court papers.
Federal Insurance said Cleary’s offices didn’t sustain direct physical damage covered under the policy other than minor cracks in the sheetrock and ceiling at One Liberty Plaza and some water damages at the other offices, which had no impact on the firm’s ability to conduct business.
The insurer said it paid Cleary about $180,000 for covered property damages to the New York and Washington offices.
Nocera, whose firm is defending insurers in several Sandy-related suits, declined to comment. A Chubb spokesman Mark Greenberg also declined comment.
A Cleary spokeswoman said the firm declined comment.
One Liberty Plaza is home to other firms, including Flemming Zulack Williamson Zauderer, which has a longterm sublease with Cleary, said partner Mark Zauderer.
Zauderer said for several days after the storm, his firm did not have access to its offices. His firm also explored a business interruption claim, he said, declining to elaborate.
Speaking generally on insurance coverage claims, Zauderer said, “Insurance policies vary considerably in both their coverage and their specific language and so just about every dispute becomes an examination of the policies. It’s when matters are ambiguous that litigation is likely to take place.”
Law firms were among scores of businesses in downtown Manhattan temporarily closed or displaced. The storm forced lawyers from Sullivan & Cromwell; Fried, Frank, Harris, Shriver & Jacobson and Cahill Gordon & Reindel, among others, to keep pace remotely and from alternate locations for a short period of time.
Fragomen, Del Rey, Bernsen & Loewy, which was displaced for about nine months from 7 Hanover Square, submitted about a $4 million claim to Chubb Corp. in 2013 for business interruption and expenses. The firm is still negotiating that claim and has not sued Chubb.
Several small and midsize firms turned to litigation last year against insurers that denied business interruption claims, including Lester Schwab Katz & Dwyer and Mintz & Gold. Those suits are still active.