Opinion
02 CIV. 3401 (DLC)
February 13, 2003
Alfred L. Odom Weg and Myers, New York, NY., Attorneys for Plaintiff.
Michael S. Leavy Gennet, Kallman, Antin Robinson, New York, NY. Attorneys for Defendant.
OPINION AND ORDER
Indian Chef, Inc. ("Indian Chef") has filed this action to recover insurance proceeds to which it believes it is entitled under its policy with defendant Fire and Casualty Insurance Company of Connecticut ("FCIC"). Indian Chef is located near the site of the World Trade Center disaster and seeks recovery for property damage and lost business income in the aftermath of the events of September 11, 2001. FCIC contends in this partial summary judgment motion that it is entitled to an appraisal under its policy with the insured. Indian Chef contends that FCIC has waived the right to an appraisal, that an appraisal is no longer practical with respect to its property damage claim, and that an appraisal is inappropriate with respect to the claim for lost business income since the parties' dispute is about coverage.
The Appraisal clause for property damage coverage reads:
If we and you disagree on the value of the property or amount of the loss, either may make written demand for an appraisal of the loss.
The Appraisal clause for the business interruption coverage reads:
If we and you disagree on the amount of Net Income and operating expense or the amount of loss, either may make written demand for an appraisal of the loss. (Emphasis supplied.)
For the following reasons, the motion for partial summary judgment to compel an appraisal is denied.
Background
The following facts are undisputed unless otherwise noted. On September 11, 2001, Indian Chef's premises were damaged as a result of the act of terrorism that destroyed the World Trade Center. Indian Chef's insurance policy with FCIC contains coverage for both property damage and lost business income. Either the insured or the insurer may make a written demand for an appraisal if they disagree on the value of the property loss or damage or if they disagree on the amount of lost business income and operating expense.fn1 The contract requires a party to be in full compliance with the terms of the policy prior to bringing suit.
The adjusters for the two parties inspected the premises approximately two weeks after September 11, 2001. Thereafter, the parties disagreed on whether cleaning was sufficient to restore the damaged property or whether it had to be replaced.
In addition, they disagreed as to whether the Extended Business Income clause of the policy as well as the Civil Authority clause applied to the claimed losses for lost business income. This disagreement is not insignificant, since the respective provisions have different time limitations and different formulae for determining the amount of the coverage. Accountants for the parties discussed the claim for lost business income but did not reach any agreement about how the loss should be calculated.
The relevant portions of the policy provide:
3. Additional Coverages
b. Civil Authority. We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. The coverage for Business Income will begin 72 hours after the time of that action and will apply for a period of up to three consecutive weeks after coverage begins.
* * *
d. Extended Business Income. (1). . . . If the necessary suspension of your "operations" produces a Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur during the period that:
(a) Begins on the date property (except "finished stock") is actually repaired, rebuilt or replaced and "operations" are resumed; and
(b) Ends on the earlier of:
(i) The date you could restore your "operations", with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss 3 or damage had occurred; or
(ii) 30 consecutive days after the date determined in (1)(a) above.
In November 2001, FCIC paid $4,000 to Indian Chef as an advance against its claim. On January 7, 2002, FCIC sent proof of loss forms indicating losses of $4,457.41 for property damage and $4,695 for lost business income. Indian Chef's adjuster wrote to FCIC on February 1, 2002, indicating that Indian Chef would accept FCIC's proofs of loss as partial payments of the claim, and attached Indian Chef's proofs of loss which reflected a claim for property loss and lost business income in excess of the policy limits, which are $50,000 and $25,000 respectively.
He indicated that he expected FCIC to make the undisputed partial payment and to respond to Indian Chef's proofs of loss. This letter also complained to the defendant's adjuster about the carrier's bad faith and refusal to negotiate or even discuss their differences.
FCIC wrote on February 25, 2002, that it rejected the proof of loss submitted by Indian Chef and reserved all of its rights and defenses in connection with the ascertainment of the value and loss, and did not waive any of its rights under the policy.
Indian Chef never responded in writing to the letter, but contends that the numerous telephone calls made by its public adjuster were never returned. Neither party ever demanded an appraisal.
On May 2, 2002, Indian Chef filed this lawsuit. Shortly after being served, in a conversation in late May or early June, counsel for FCIC told an attorney for Indian Chef that it wished to resolve the issue of damages through an appraisal, as required by the insurance policy. In an affirmative defense pleaded in the answer served in mid-June, FCIC repeated this assertion. At the September 13, 2002 initial pretrial conference with the Court, FCIC again asserted its right to an appraisal. Since the plaintiff objected at the conference to the appraisal, a schedule was set for this motion.
Meanwhile, in late May 2002, the plaintiff was permitted access to its premises to begin clean-up and renovation. It undertook a major renovation and reopened for business on June 16, 2002.
Discussion FCIC does not indicate whether it is invoking its right to an appraisal under the property damage provisions or the lost business income provisions of the policy. As the two forms of coverage present different issues, they will be discussed separately.
A. Property Damage
Plaintiff contends that an appraisal to determine the amount of property damage or loss is no longer practical, since it has resumed its operations and has renovated its premises. Under New York law, the right to an appraisal "must be exercised within a reasonable period." Chainless Cycle Mfg. Co. v. Security Ins. Co., 169 N.Y. 304, 310 (1901); Peck v. Planet Ins. Co., No. 93-4961 (MBM), 1994 WL 381544, at *3 (S.D.N.Y. July 21, 1994). Where a delay in demanding an appraisal has resulted in the removal, destruction, or repair of the damaged property, an appraisal is no longer practical. See Chainless, 169 N.Y. at 312; Uhrig v. Williamsburgh City Fire Ins. Co., 101 N.Y. 362, 366 (1886); see also Richardson v. Merrimack Mutual Fire Ins. Co., No. 98-5967 (JFK), 2000 WL 297171, at *5 (S.D.N.Y. Mar. 21, 2000).
The plaintiff has completed the renovation of its restaurant and has resumed its business operations. Consequently, the damaged items inside plaintiff's restaurant as well as the damage to the structure itself are no longer available for inspection — a fact undisputed by the defendant. The defendant offers no explanation of how an appraisal could be conducted now. Indeed, the defendant does not even respond to plaintiff's argument of impracticality. Because the defendant has failed to establish that an appraisal could in fact be fruitful at this point, the defendant's motion for partial summary judgment compelling appraisal is denied with respect to the property damage claim.
B. Lost Business Income
Plaintiff contends that appraisal is inappropriate for determining the amount of lost business income, because the parties disagree about which provisions of the policy apply to the calculation of lost business income. New York courts have long recognized the role of appraisals in resolving disputes 6 between an insurer and insured where the disagreement is over the value or amount of loss. Penn Central Corp. v. Consol. Rail Corp., 56 N.Y.2d 120, 127 (1982); In re Delmar Box Co., 309 N.Y. 60, 63 (1955). The appraisal process, unlike an arbitration, "resolves only a valuation question leaving all other issues for resolution at a plenary trial." Penn Central Corp., 56 N.Y.2d at 127. Appraisers are not empowered to address disputes arising from questions of coverage or liability. See Lee v. Hamilton, 251 N.Y. 230, 234 (1929); Maimes v. Automobile Ins. Co., 183 N.Y.S. 690, 691 (N.Y.Sup.Ct. 1920), aff'd, 187 N.Y.S. 943 (1921); Kawa v. Nationwide Mutual Fire Ins. Co., 664 N.Y.S.2d 430, 431 (N.Y.Sup.Ct. 1997). A dispute between the parties that "goes to coverage under the policy and can only be resolved by analysis and application of the policy" is not appropriate for appraisal. Kawa, 664 N.Y.S.2d at 431.
FCIC has taken the position that the amount of the business interruption claim should be based solely on the "Civil Authority" provision of the policy. Plaintiff, on the other hand, asserts that the lost business income claim is governed by both the Civil Authority and Extended Business Income provisions of the policy, and that these policy provisions should be read as complimentary rather than exclusive.
Although the defendant summarily asserts that its dispute with the plaintiff involves the amount of loss rather than a question of coverage, it does not concede that the plaintiff's interpretation of the policy is correct. Instead, the defendant argues that, even if the plaintiff's interpretation of the policy 7 is correct, an appraisal is still appropriate where there is "an issue as to damages." Defendant, citing Kawa, contends that the issue of coverage can be determined in a plenary action following an appraisal.
The defendant misstates the law on appraisal. Where the parties' dispute is essentially a difference regarding coverage, the request for appraisal should be denied. Kawa, 664 N.Y.S.2d at 431. Similarly, the defendant's reliance on Kawa is misplaced. The court in Kawa held that an appraisal was inappropriate precisely because the dispute between the parties was over coverage rather than the amount of loss. Id. Having presented no argument or evidence to dispute the plaintiff's contention that the dispute between the parties involves an issue of coverage, the defendant's motion for partial summary judgment compelling an appraisal is denied with respect to the lost business income claim.
Because this Court has concluded that an appraisal is inappropriate in this case, it need not reach the issue of the waiver of the right to appraisal.
Conclusion
The defendant's motion for partial summary judgment is denied.SO ORDERED.