On April 6, 2016, Justice Oing of the New York County Commercial Division issued a decision in Borah Goldstein v. Trumbull Insurance Company, Index No. 652633/2013, analyzing a law firm’s claims under a business interruption insurance policy for business lost as a result of Hurricane Sandy and a computer virus that affected its computer system for weeks.
Many law firms and other businesses lost business during Hurricane Sandy in 2012, and many others have had their computer systems affected by computer viruses. The law firm Borah Goldstein was unfortunate enough to experience both in the same month: the firm’s access to its offices was restricted for 72 hours after Sandy made landfall on October 29, 2012, and court closures, prevented it from resuming its business operations through November 4. Later that month, the “Zero-Day” computer virus struck the firm’s computer system, “affect[ing] over 50% of plaintiff’s attorneys and non-legal employees, and their ability to operate in a normal fashion.” Borah Goldstein sought compensation under its business interruption insurance, issued by Trumbull Insurance Company. When Trumbull denied coverage, the law firm brought a coverage action. Justice Oing dismissed the Hurricane Sandy-related claim, but allowed the claim for loss of business resulting from the computer virus to proceed.
Although Borah Goldstein lost access to its offices in Lower Manhattan for several days, the resulting loss of business was not covered by its business interruption policy. The firm sought coverage under three provisions of the policy:
- A “Civil Authority” provision, which covers loss of business income where access to the insured’s premises “is specifically prohibited by order of a civil authority”;
- A “Dependent Properties” provision, which covers loss of business income arising from “physical loss or physical damage” to the property of a third party that the insured uses, inter alia, to “[d]eliver materials or services to you or to others for your account,” or to “[a]ccept your products or services”; and
- An “Off-Premises Utility Services” provision, which covers loss of business income from a loss of “Power Supply Services” as the result of a covered cause of loss off the insured’s premises (i.e., at the power company).
The Court granted summary judgment to the carrier, finding no coverage any of these provision. First, Goldstein Borah’s claims were barred by the policy’s flood exclusion – a fate that has befallen many victims of Hurricane Sandy. Justice Oing held that the undisputed evidence showed that the losses resulted at least in part from flooding resulting from the storm. This was all that was required, since the flood exclusion applies “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” The Court held that the Civil Authority provision was inapplicable because the mandatory evacuation orders issued by the City government did not “specifically prohibit access to plaintiff’s premises,” and “[p]laintiff’s mere difficulty in accessing the premises is not sufficient to constitute a prohibition.” The court also rejected Goldstein Borah’s argument that the “Dependent Properties” provision was triggered by the closure of the courthouses in Manhattan, find “no evidence that the court closures were cause by direct physical loss or physical damages at the courthouses, or that the courthouse buildings fall within the business policy’s definition of dependent property.”
Goldstein Borah’s claim for loss of business income arising from the computer virus survived summary judgment. Justice Oing rejected the carrier’s argument that there was no coverage for the already-incurred costs of a services contract with a vendor that repaired the firms’ computer system, finding that the policy “provides coverage for mitigating the effects of the virus and for extracting the virus.” Finally, the court found an unresolved question of fact as to whether the law firm lost business income as a result of the virus.
This decision illustrates the importance of reading insurance policies carefully and understanding precisely what is – and is not – covered. As Goldstein Borah learned in this case, a business interruption policy does not automatically cover any loss of business, but only a loss that falls within the scope of coverage and is not captured by any of the policy’s exclusions.