DREAM SPA, INC. v. FIREMAN'S FUND INSURANCE

Full title: DREAM SPA, INC. d/b/a TRANQUILITY SPA, Plaintiff, v. FIREMAN'S FUND…

Court: United States District Court, S.D. New York

Date published: Feb 5, 2008

Case No. 06-CV-13142 (KMK) (S.D.N.Y. Feb. 5, 2008)

Opinion

Case No. 06-CV-13142 (KMK).

February 5, 2008

Justin Corey Frankel, Esq., Jason A. Newfield, Esq., Frankel Newfield, P.C., Garden City, New York, Counsel for Plaintiff.

Seth Ian Weinstein, Esq., Lester, Schwab, Katz Dwyer LLP, New York, New York, Counsel for Defendant.

OPINION ORDER

KENNETH KARAS, District Judge

Before the Court is Defendant Fireman's Fund Insurance's ("Defendant") Motion to Dismiss and/or Motion for Summary Judgment, as well as Plaintiff Dream Spa Inc. d/b/a Tranquility Spa's ("Plaintiff") Cross-Motion to Dismiss and/or Motion for Summary Judgment. For the reasons stated herein, Defendant's Motion is denied in part and granted in part, and Plaintiff's Cross-Motion is denied without prejudice to renewal.

I. Background

A. Facts

The following facts are not in dispute, except where noted. Plaintiff is a New York corporation operating a day spa in Scarsdale, New York. (Compl. ¶¶ 1-2.) Defendant is a property and casualty insurance company with a principal place of business in California and a license to do business in New York. (Compl. ¶ 3; Answer and Countercl. ¶ 3.) Defendant originally issued to Plaintiff a Business Coverage Policy under policy number 8 H3 AZC 80774603 ("the Policy"), which was effective from November 19, 2004 until November 19, 2005. (Def.'s Rule 56.1(a) Statement ¶ 4 ("Def.'s 56.1 Stmt"); Pl.'s Rule 56.1(b) Statement Responding to Def.'s 56.1(a) Statement ¶ 4 ("Pl.'s 56.1 Resp.").) The Policy was renewed to remain effective from November 19, 2005 until November 19, 2006, and then from November 19, 2006 until November 19, 2007. (Def.'s 56.1 Stmt ¶ 4; Pl.'s 56.1 Resp. ¶ 4.)

The Policy provides coverage for two main types of property: (i) "business personal property," which was provided for by Coverage B, and (ii) buildings, which were provided for by Coverage A.¹ (Def.'s 56.1 Stmt ¶¶ 13, 15; Pl.'s 56.1 Resp. ¶¶ 13, 15; Schwalbach Aff., Ex. A, Policy 2.) The Policy's Declarations provide for a $158,000 coverage limit for damage to business personal property under Coverage B.² (Def.'s 56.1 Stmt ¶ 4; Pl.'s 56.1 Resp. ¶ 4; Schwalbach Aff., Ex. A, Declarations.) There is also a list of "Additional Coverages," one of which — "Business Income" — is at the center of the present dispute. ( See Def.'s 56.1 Stmt ¶ 15; Pl.'s 56.1 Resp. ¶ 15; Schwalbach Aff., Ex. A, Policy 3-4.) The "Additional Coverages" provide that "[a]ny limit provided for [the Additional Coverages] is in addition to the Coverage A and B Limits of Insurance unless otherwise indicated." (Def.'s 56.1 Stmt ¶ 15; Pl.'s 56.1 Resp. ¶ 15; Schwalbach Aff., Ex. A, Policy 3.)

1 Because Plaintiff did not own the building where its spa was located, the Policy between Plaintiff and Defendant did not include Coverage A. (Schwalbach Aff., Ex. B.)

2 When the Policy was renewed for the time period spanning from November 19, 2006 until November 19, 2007, this limit was increased to $166,000.

"Business Income" coverage allows Plaintiff to recover "the actual loss of Business Income [it] sustain[s] due to the necessary suspension of [its] operations during the period of restoration" for up to "12 consecutive months after the date of direct physical loss or damage." (Schwalbach Aff., Ex. A, Policy 5.) However, this coverage was only available if the suspension was "caused by direct physical loss of or damage to property at the described premises, including personal property . . . caused by or resulting from any Covered Causes of Loss." ( Id., Ex. A, Policy 5.) "Covered Causes of Loss" are defined by the Policy as "RISKS OF DIRECT PHYSICAL LOSS unless the loss is: . . . Excluded in Part B. . . ." (Def.'s 56.1 Stmt ¶ 14; Pl.'s 56.1 Resp. ¶ 14; Schwalbach Aff., Ex. A, Policy 3.)

Among the losses excluded from the definition of "Covered Causes of Loss" are losses caused by:

(1) Flood, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;

(2) Surface water;

(3) Mudslide or mudflow;

(4) Water that backs up from a sewer or drain; or

(5) Water under the ground surface pressing on, or flowing or seeping through. . . .

(Def.'s 56.1 Stmt ¶ 8; Schwalbach Aff., Ex. A, Policy 14-15.) The Parties, however, executed a Water Damage Endorsement ("WDE"), which modified the Exclusions section by deleting provisions (4) and (5), and otherwise leaving "[a]ll other terms and conditions of [the Policy] . . . the same." (Schwalbach, Ex. A, WDE.) The Policy's Declarations indicate that "[t]he limit of insurance for [optional coverages] is the applicable [Coverage A or Coverage B] limit . . . unless a limit of insurance is . . . shown below." ( Id., Ex. A, Declarations.) Below this statement is a line indicating that the WDE is subject to a $50,000 limit. ( Id., Ex. A, Declarations.)

On July 19, 2006, Plaintiff notified Defendant that Plaintiff's spa was damaged as a result of flooding and a sewer drain backup, and Defendant assigned its Regional General Adjuster, Eric Schwalbach, to adjust the loss. (Def.'s 56.1 Stmt ¶¶ 5-6; Pl.'s 56.1 Resp. ¶¶ 5-6.) Several days later, on July 24, 2006, Defendant issued to Plaintiff a check for $50,000 for damage caused by the sewer drain backup.³ (Def.'s 56.1 Stmt ¶ 10; Pl.'s 56.1 Resp. ¶ 10.) On August 4, 2006, Defendant issued to Plaintiff another check for $50,000, this time as an advance on an anticipated claim for loss of business income. (Pl.'s Rule 56.1(a) Statement ¶ 1 ("Pl.'s 56.1 Stmt"); Def.'s Rule 56.1(b) Statement Responding to Pl.'s 56.1(a) Statement ¶ 1 ("Def.'s 56.1 Resp.").)

3 Defendant has taken the position that, pursuant to the Water Damage Endorsement ("WDE"), Plaintiff was entitled to up to $50,000 in coverage for loss of business personal property resulting from the sewer drain backup, but that Plaintiff was not entitled to any coverage for loss resulting from flooding or surface water. (Def.'s 56.1 Stmt ¶ 9; Schwalbach Aff., Ex. B.)

On August 24, 2006, Defendant sent a letter to Plaintiff, which expressed Defendant's view that all loss caused to Plaintiff's spa resulting from the sewer drain backup was subject to an overall limit of $50,000. ( See Def.'s 56.1 Stmt ¶ 9; Aff. of Eric Schwalbach, Ex. B ("Schwalbach Aff.").) The letter also notified Plaintiff of Defendant's position that the second check for $50,000 was issued in error. (Pl.'s 56.1 Stmt ¶ 3; Def.'s 56.1 Resp. ¶ 3; Schwalbach Aff., Ex. B.) The letter stated, "[w]hile we [Defendant] would appreciate reimbursement of our overpayment in error, we will not pursue the matter beyond this one request." (Schwalbach Aff., Ex. B.) Further, the letter explained that, "[n]othing contained herein or heretofore constitutes a waiver of any of the terms or conditions of the policy." ( Id.)

B. Procedural History

On November 10, 2006, Plaintiff filed a Complaint against Defendant in the Southern District of New York premised on diversity jurisdiction. ( See Compl. ¶ 4.) The Complaint contained the following three claims: (i) Defendant breached the insurance contract "by failing to pay for losses caused by perils that were not excluded under the policy of insurance and by failing to properly investigate [Plaintiff's] claim and losses[,]" ( see id. ¶ 24); (ii) Plaintiff is entitled to a declaratory judgment that "Plaintiff's Business Overhead losses are a covered loss[,]" ( see id. ¶ 34(b)); and (iii) Defendant acted in bad faith "[b]y failing to properly investigate [Plaintiff's] claim of loss, by falsely representing to [Plaintiff] that its claim would be paid, and by refusing to pay [Plaintiff] for covered losses under the Policy," ( see id. ¶ 33). In addition to a declaratory judgment, the Complaint seeks $350,000 in compensatory damages for the breach of contract, plus consequential and punitive damages. ( See id. ¶¶ 22-23, 33-34.)

Defendant filed an Answer and a Counterclaim against Plaintiff on January 10, 2007. Defendant's Counterclaim alleges that Defendant "erroneously issued to [P]laintiff an additional check for $50,000, above and beyond the $50,000 coverage limits . . . under the Water Damage Endorsement" (Answer and Countercl. ¶ 47), and that "Plaintiff has been unjustly enriched by [Defendant's] $50,000 payment above and beyond the Water Damage Endorsement coverage limits with respect to the subject loss and therefore, plaintiff should be required to return same to [Defendant]" ( Id. ¶ 49). The Counterclaim seeks $50,000 in damages from Plaintiff, in addition to a judgment dismissing Plaintiff's Complaint and declaring that Defendant does not owe any further coverage to Plaintiff. ( Id. ¶ 50.)

Defendant has filed a Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) and/or a Motion for Summary Judgment pursuant to Fed.R.Civ.P. 56 dismissing Plaintiff's Complaint and for Summary Judgment on its Counterclaim. ( See Def.'s Notice of Mot. 1.) Plaintiff responded by filing a Cross-Motion for Summary Judgment pursuant to Fed.R.Civ.P. 56 on its claim for a declaratory judgment and a Motion to Dismiss Defendant's Counterclaim pursuant to Fed.R.Civ.P. 12(b)(6). ( See Pl.'s Notice of Cross-Mot. 1.) Both Parties filed Affidavits and Local Civil Rule 56.1 Statements and Responses with their respective submissions, and Defendant annexed to the Affidavit of Eric Schwalbach a copy of the Policy and the August 24, 2006 letter. The Court held oral argument on January 29, 2008.

II. Discussion

A. Standard of Review

1. Summary Judgment

Both Parties brought motions to dismiss and/or motions for summary judgment. At oral argument, the Parties unequivocally agreed with the Court's suggestion that their respective motions be treated as ones for summary judgment. Pursuant to Rule 56(c), "[s]ummary judgment shall be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." See Powell v. Nat'l Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir. 2004)); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). Summary judgment is appropriate when the non-movant "has not shown that evidence of an essential element of her case — one on which she has the burden of proof — exists." See Powell, 364 F.3d at 84.

The burden is on the movant to show that there is no genuine factual dispute. See Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir. 2003) (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970)). "In deciding a motion for summary judgment, all ambiguities must be resolved and all reasonable inferences drawn in favor of the party opposing the motion." EMI Catalogue P'ship v. Hill, Holliday, Connors, Cosmopulos Inc., 228 F.3d 56, 61 (2d Cir. 2000) (citing Anderson, 477 U.S. at 255); see also Giannullo, 322 F.3d at 140. "If the evidence is such that, when viewed in the light most favorable to the nonmoving party, a reasonable fact finder could return a verdict for that party, then a genuine issue of material fact exists, and summary judgment is not warranted." Magan v. Lufthansa German Airlines, 339 F.3d 158, 161 (2d Cir. 2003) (citing Green Door Realty Corp. v. TIG Ins. Co., 329 F.3d 282, 286-87 (2d Cir. 2003)).

However, Fed.R.Civ.P. 56(e) itself provides that the adverse party "may not rely merely on allegations or denials in its own pleading; rather, its response must — by affidavits or as otherwise provided in this rule — set out specific facts showing a genuine issue for trial." Thus, "[o]nce a moving party has made a showing that no material issues of fact are in dispute, mere conjecture or speculation by the party resisting summary judgment does not provide a basis upon which to deny the motion." Quarles v. Gen. Motors Corp. (Motors Holding Div.), 758 F.2d 839, 840 (2d Cir. 1985); accord Woodman v. WWOR-TV, Inc., 411 F.3d 69, 85 (2d Cir. 2005) ("The law is well established that conclusory statements, conjecture, or speculation are inadequate to defeat a motion for summary judgment." (internal quotation marks omitted)). 2. Interpretation of Insurance Contracts Under New York Law ⁴

4 In their briefing papers, both Parties assume — as will the Court — that New York law governs this dispute.

"Insurance policies are, in essence, creatures of contract, and accordingly, subject to principles of contract interpretation. . . . It is unquestionably the rule that contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties have used, and if they are clear and unambiguous the terms are to be taken and understood in their plain, ordinary and proper sense." In re Covert, 761 N.E.2d 571, 576-77 (N.Y. 2001) (internal citations and quotation marks omitted); see also Zahler v. Twin City Fire Ins. Co., No. 04-CV-10299, 2007 WL 2936321, at *2 (S.D.N.Y. Sept. 17, 2007) ("New York insurance law provides that `an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract.'" (quoting Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000))). Courts applying New York law have been clear in mandating that unambiguous contract provisions be enforced as written, see Goldberger v. Paul Revere Life Ins. Co., 165 F.3d 180, 182 (2d Cir. 1999), and be interpreted by the court as a matter of law, see Morgan Stanley Group, 225 F.3d at 275; Town of Harrison v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 675 N.E.2d 829, 832 (N.Y. 1996).

The determination of whether a contract provision is ambiguous is also a matter of law for the court. See Zahler, 2007 WL 2936321, at *3 ("Whether a contract is ambiguous . . . is a threshold question of law to be determined by the court." (quoting Duane Reade Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d 384, 390 (2d Cir. 2005))). "An ambiguity exists where the terms of an insurance contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Morgan Stanley Group, 225 F.3d at 275 (internal quotation marks omitted). In making the ambiguity determination, a policy should be interpreted "in light of common speech and the reasonable expectations of a businessperson." Pepsico, Inc. v. Winterthur Int'l Am. Ins. Co., 788 N.Y.S.2d 142,144 (App.Div. 2004) (internal quotation marks omitted). A finding of ambiguity allows the court to consider extrinsic evidence of the parties' intent. See Morgan Stanley Group, 225 F.3d at 275-76. Ambiguity in a contract provision also opens the door for the court to apply other rules of contract interpretation, including the doctrine of contra proferentum, which allows for ambiguities to be construed against the drafter/insurer. See id. at 276; Goldberger, 165 F.3d at 182; see also Pepsico, Inc., 788 N.Y.S.2d at 144.

In a dispute between an insurer and an insured over coverage, the insured has the initial burden of demonstrating that there is coverage for the subject loss. Morgan Stanley Group, 225 F.3d at 276. An insurer arguing for the applicability of an exclusion to coverage must overcome a significant hurdle. See id. at 276 n. 1 ("An insurer bears the burden of proof when it claims that an exclusion in the policy applies to an otherwise covered loss."). "[T]o negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. . . . The burden, a heavy one, is on the insurer . . ., and if the language of the policy is doubtful or uncertain in its meaning, any ambiguity must be resolved in favor of the insured and against the insurer." Pepsico, Inc., 788 N.Y.S.2d at 144 (internal quotation marks and citations omitted).

B. Analysis

1. Plain Meaning of the Policy

Plaintiff and Defendant both argue that the plain meaning of the Policy supports their very different views of what coverage is available for losses sustained by Plaintiff as a result of the July 19, 2006 incident. The issue is whether the Policy provides coverage for Plaintiff's actual loss of business income resulting from the causes listed in the WDE, i.e., whether the Business Income provision of the Policy provides coverage in the present case. The Court finds that it does.

Defendant's position is that the aggregate coverage for all loss flowing from the sewer drain backup is subject to the WDE's $50,000 limit and that, in any event, business income coverage is not available in situations, such as the present one, where the loss is caused by flood or sewer drain backup.⁵ (Mem. of Law in Supp. of Def.'s Mot. to Dismiss and/or for Summ. J. 8-11 ("Def.'s Mem.").) Defendant's argument that business income coverage is not available in the present situation is based on the fact that floods and sewer drain backup are expressly excluded from the definition of "Covered Causes of Loss[,]" and business income coverage is only available where the loss is caused by a "Covered Cause of Loss." (Def.'s Mem. 8-11.) It is illogical, according to Defendant, for Plaintiff to argue on the one hand that the WDE provides coverage for this otherwise excluded loss, and on the other hand that $50,000 limit provided for in the WDE does not apply to Plaintiff's overall claim. ( Id. 11.) Having already paid $50,000 to Plaintiff for property damage caused by the sewer drain backup, Defendant asserts that it has no further obligations under the Policy with respect to this incident. ( Id. 11-12.)

5 In connection with this argument, Defendant also argues that the Berr and Schwartz Affidavits submitted by Plaintiff may not be considered by the Court as extrinsic evidence where the contract's terms are unambiguous. (Def.'s Reply Mem. of Law in Supp. of Def.'s Mot. to Dismiss and/or for Summ. J. and Opp'n to Pl.'s Cross-Mot. for Summ. J. 3 ("Def.'s Reply").) Because the Court agrees that the Policy's terms are unambiguous, neither the affidavits submitted by Plaintiff nor the affidavit submitted by Defendant will be considered in the Court's interpretation of the Policy terms.

Not surprisingly, Plaintiff has a very different take on the plain meaning of the Policy as it pertains to the availability of business income coverage for loss arising from the sewer drain backup.⁶ Plaintiff asserts that the WDE does not limit coverage for the actual loss of business income. ( See Mem. of Law in Opp'n to Mot. for Summ. J. and in Supp. of Cross Mot. for Dismissal of Countercl. 3 ("Pl's Mem.").) According to Plaintiff, the WDE served only to supplement coverage under the Policy by deleting certain exclusions and otherwise leaving "all other terms and conditions of [the Policy] . . . the same." ( See id. 6.) Specifically, Plaintiff argues that by virtue of the WDE, the previously excluded causes of loss experienced by Plaintiff in the present case became "Covered Causes of Loss" and therefore are eligible for business income coverage. ( See id. 7-8.) Plaintiff claims that "the policy plainly and unambiguously provides full coverage for actual loss of business income — without the $50,000.00 cap [Defendant] seeks to place upon an aggregate loss of business income and property damage." ( Id.) The Court agrees.

6 In an effort to cover all of its bases, Plaintiff argues that to the extent the Court finds the Policy's terms to be ambiguous, New York law requires that such ambiguity be resolved in favor of the insured. ( See Pl.'s Mem. 8-11.)

The Court finds that the plain language of the Policy clearly and unambiguously supports Plaintiff's position that the Policy provides coverage for Plaintiff's actual loss of business income arising from "(4) water that backs up from a sewer or drain; or (5) water under the ground surface pressing on, flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings" because such are "Covered Causes of Loss" as defined in the Policy. Defendant insists that such causes are excluded from the definition of "Covered Causes of Loss" because they are listed under the "Exclusions" in the Policy. While this is technically true, the WDE is clearly-worded and completely flies in the face of this argument by Defendant. The WDE modifies the "Exclusions" by "hereby delet[ing]" exclusions 4 and 5, but otherwise leaving " all other terms and conditions of [the Policy] . . . the same." When the Court reads the Policy and the WDE together, as it is required to do, see County of Columbia v. Continental Ins. Co., 634 N.E.2d 946, 950 (N.Y. 1994) ("[I]t is settled that in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as altered by the words of the endorsement." (internal citations omitted)), it is apparent that the causes listed in the WDE are not exclusions at all. Of course, in the absence of the WDE, those causes are clearly listed as exclusions in the Policy, but the WDE deletes them from the exclusions list — as if they were never there. Therefore, the Court reads the Policy as if the causes listed in the WDE were never listed as exclusions.

Once the Court has determined that the causes listed in the WDE are not exclusions but in fact "Covered Causes of Loss[,]" the next issue is the WDE's $50,000 limit. More specifically, the issue is whether the $50,000 limit serves only to limit coverage for business personal property damage — as is asserted by Plaintiff — or if the $50,000 limit is a cap on all damages, including loss of business income, resulting from the sewer drain backup — as is asserted by Defendant.⁷ Once again, the Court is able to turn to the plain language of Policy for the answer.

7 In support of its argument that the WDE's $50,000 limit is a cap on all damages resulting from the July 2006 incident, Defendant cites to 1335 Piccard LLC v. Nat'l Fire Ins. Co. of Hartford, 171 Fed. App'x 993 (4th Cir. 2006) (" Piccard"), and Hirshfeld v. Maryland Cas. Co., 671 N.Y.S.2d 100 (App.Div. 1998).
In Hirshfeld, plaintiff/insured and defendant/insurer entered into an insurance contract, which excluded damages resulting from water backup. The parties executed an endorsement, which provided for $3,500 in coverage for damage caused by water backup. See Hirshfeld, 671 N.Y.S.2d at 101. Plaintiff filed suit against defendant for breach of contract because of defendant's refusal to pay damages in excess of $3,500 for damage caused by water backup. Plaintiff argued that such damage was not subject to a limit because the limit appeared only on the endorsement itself and not on other policy documents. The court read the policy documents and endorsement together and held that damage caused by water backup was indeed subject to a $3,500 limit. See id.
Defendant cites Hirshfeld for the proposition that the Court should enforce the $50,000 limit provided for in the WDE and interpret that limit as an overall cap on damages sustained in the flood. However, all Hirshfeld does for Defendant is establish that the $50,000 limit in the WDE should be enforced. No one — including Plaintiff — disputes this. All are in agreement that there is at least a $50,000 limit on business personal property damage under the WDE. Hirshfeld does not help Defendant as the plain meaning of the Policy terms leads to the conclusion that the $50,000 limit serves only to limit recoverable damages to business personal property.
Piccard, an unpublished Fourth Circuit opinion, also does not help Defendant. In Piccard, the plaintiff/insured was issued a business risks insurance policy, which excluded "water that backs up from a sewer or drain" from its definition of "Covered Cause of Loss." See Piccard, 171 Fed. App'x at 995. However, the policy included a coverage extension, which provided that the defendant/insurer would pay for "loss or damage to covered property caused by water that backs up from a sewer or drain. . . . The most we will pay for direct physical damage is [$50,000]." See id. (alterations in original). The court found that the $50,000 limit in the extension prevented plaintiff from recovering in excess of that amount in lost business income because it was excluded from the definition of "Covered Cause of Loss." See id.
Though factually similar, the Piccard case is decisively different from the present situation. In Piccard, the insurer provided a limited amount ($50,000) of coverage for an excluded cause of loss. In this case, the WDE changed the status of certain causes of loss from "excluded" to "covered" and left the rest of the Policy in tact.

Damage caused to business personal property by Covered Causes of Loss is described in Coverage B under Section 1 of the Policy, which is subject to a $158,000 limit. (Schwalbach Aff., Ex. A, Declarations.) The Declarations state that "the limit insurance for [the WDE] is the applicable Section 1 . . . limit . . . unless a limit of insurance is . . . shown below." Below this statement is the following: "Water Damage Endorsement . . . $50,000 Limit." If this $50,000 limit did not appear, the WDE would have been subject to the $158,000 limit applicable to all other damage caused to business personal property under Coverage B. It appears then that the $158,000 limit under Coverage B and the $50,000 limit under the WDE should be accorded the same treatment with regard to whether they operate to limit only coverage for business personal property damage or whether they operate as an overall cap to coverage, including loss of actual business income.

Business income coverage is an "Additional Coverage[,]" which allows the insured to collect "the actual loss of Business income [sustained] due to the necessary suspension of [its] operations during the period of restoration[,]" subject to certain conditions and exclusions. (Schwalbach Aff., Ex. A, Policy 5 (emphasis added).) "Any limit of insurance provided for these [Additional Coverages] is in addition to the Coverage . . . B Limits of Insurance unless otherwise indicated." (Schwalbach Aff., Ex. A, Policy 3 (emphasis added).) The Court reads this to mean that once the business income coverage is triggered, the insured is entitled to collect its actual loss to business income resulting from a Covered Cause of Loss in addition to the maximum coverage available for damage to business personal property, which is subject to either a $158,000 limit (under Coverage B generally) or a $50,000 limit (under the WDE). Either way, the Policy makes clear that "[t]his additional coverage [referring to Business Income] is not subject to the Limits of Insurance." (Schwalbach Aff., Ex. A, Policy 5 (emphasis added).)

To summarize, the Court finds the following coverage available under the Policy to cover losses sustained by Plaintiff due to the July 19, 2006 incident: Plaintiff is entitled to recover up to $50,000 for damage to business personal property resulting from the causes listed in the WDE and the actual loss of business income suffered as a result of any Covered Cause of Loss, subject of course to any applicable conditions or exclusions.⁸ The Court understands that Plaintiff has already received the full $50,000 for damage sustained to business personal property and is therefore not entitled to any further coverage for property damage. In determining the amount due to Plaintiff for loss of business income, Defendant is directed to be mindful of the fact that the Court has already determined — as a matter of law — that the causes listed in the WDE are Covered Causes of Loss. Defendant's Motion for Summary Judgment dismissing Plaintiff's Complaint on the ground that all damages flowing from the July 19, 2006 incident were subject to a $50,000 coverage limit is therefore denied. Plaintiff's Cross-Motion for Summary Judgment on its claim for declaratory judgment is granted to the extent herein described.⁹ 2. Recovery of $50,000 "Overpayment"

8 Even if the Court had concluded that the Policy terms were ambiguous with respect to whether the WDE's $50,000 limit applied only to damage to business personal property or whether it applied to all damages, including loss of business income, the result here would be the same. As noted above, pursuant to the doctrine of contra proferentum, ambiguous terms in insurance agreements are to be resolved against the drafter/insurer. See Morgan Stanley Group, 225 F.3d at 276; Pepsico, Inc., 788 N.Y.S.2d at 144. Defendant, as the drafter of the Policy and the WDE, had the opportunity to specify exactly which coverages were available under the WDE. Any loss occasioned by its failure to do so will not be visited upon Plaintiff here.

9 As the insured under the Policy, Plaintiff had the right to bring an action for a declaratory judgment in the present case. See Lang v. Hanover Ins. Co., 820 N.E.2d 855, 857 (N.Y. 2004) ("There is no dispute that parties to an insurance contract — the issuer, a named insured or a person claiming to be an insured under the policy — may bring a declaratory judgment action against each other when an actual controversy develops concerning the extent of coverage . . . or other issues arising from the insurance contract."). Plaintiff's dispute with Defendant "concern[ing] the scope of coverage . . . plainly satisf[ies]" the requirement that there be a substantial controversy between the Parties in order for a district court to have jurisdiction over a declaratory judgment action. See Duane Reade, 411 F.3d at 389 ("The Declaratory Judgment Act, by its express terms, vests a district court with discretion to exercise jurisdiction over a declaratory action: `In a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.'" (citing 28 U.S.C. § 2201(a))). To determine whether to exercise jurisdiction over a declaratory judgment action, a district court should ask: "(1) whether the judgment will serve a useful purpose in clarifying or settling the legal issues involved; and (2) whether a judgment would finalize the controversy and offer relief from uncertainty." See id. The Court finds that these questions clearly point in favor of the Court exercising jurisdiction over Plaintiff's demand for a declaratory judgment in the present case.

Defendant asserted a counterclaim against Plaintiff for recovery of the second $50,000 payment, which Defendant alleges was made erroneously and now unjustly enriches Plaintiff. (Answer and Countercl. ¶¶ 46-50.) This second payment was originally made in anticipation of Plaintiff's claim for loss of business income, which Defendant later disclaimed. ( See Pl.'s 56.1 Stmt ¶ 1; Def.'s 56.1 Resp. ¶ 1.) After taking the position that Plaintiff was not entitled under the Policy to coverage for loss of business income, Defendant sent the August 24, 2006 letter, in which it stated that it would not pursue recovery of the erroneously-issued payment beyond that one request. (Pl.'s 56.1 Stmt ¶ 3; Def.'s 56.1 Resp. ¶ 3.)

In its Motion for Summary Judgment dismissing Defendant's counterclaim, Plaintiff argues that Defendant affirmatively waived any previously-held right to recoup the allegedly erroneously-issued payment by stating in its August 24, 2006 letter that it would not pursue the matter beyond that one request. (Pl.'s Mem. 11.) Plaintiff further asserts that Defendant should be estopped from seeking recovery of the $50,000 payment because Plaintiff relied on Defendant's representation that it would not seek recovery of these funds. ( Id. 11-12.)

To the extent that Plaintiff suffered an actual loss of business income resulting from a Covered Cause of Loss that equals or exceeds $50,000, these arguments are moot. If actual loss of recoverable business income equals $50,000, Defendant has satisfied its obligations under the Policy related to this coverage. If the loss exceeds $50,000, Defendant only owes Plaintiff the excess amount. Before disclaiming coverage for loss of business income, Defendant readily issued to Plaintiff an advance of $50,000 on this anticipated claim. Therefore, the Court assumes that Defendant expected Plaintiff's loss of business income to exceed that amount. Further, Plaintiff is claiming compensatory damages of at least $350,000 in this lawsuit. (Compl. ¶ 22.)

Defendant has thirty (30) days from the date of this Opinion to make a determination of Plaintiff's actual loss of business income resulting from Covered Causes of Loss in a manner that is consistent with this Opinion and submit same in a letter to the Court. If Defendant determines that amount to be less than $50,000, Plaintiff will have thirty (30) days from the date of Defendant's letter to renew its Motion to Dismiss Defendant's Counterclaim, and the Court will take up the unjust enrichment and waiver arguments at that time. If Plaintiff fails to renew its Motion within thirty days of Defendant's letter, this case will be closed.

3. Claims for Bad Faith and Consequential Damages

In its Complaint, Plaintiff alleged that Defendant performed under the Policy in bad faith "[b]y failing to properly investigate [Plaintiff's] claim of loss, by falsely representing to [Plaintiff] that its claim would be paid, and by refusing to pay [Plaintiff] for covered losses under the Policy." (Compl. ¶ 33.) Plaintiff also alleged that it "suffered additional consequential damages as a result of Defendant's breach, including, but not limited to additional operating expenses, and damage to the value of its ongoing business, and legal fees." (Compl. ¶ 23.)

Defendant moved to dismiss Plaintiff's claims for bad faith and for consequential damages on the ground that, given the factual circumstances in this case, neither is actionable under New York law. At oral argument, Plaintiff notified the Court that it was abandoning these claims — a wise choice under New York law. Therefore, the Court grants Defendant's Motion to Dismiss Plaintiff's claim for bad faith and for consequential damages.

III. Conclusion

For the reasons stated herein, Defendant's Motion for Summary Judgment is DENIED in part and GRANTED in part. Defendant has thirty (30) days from the date of this Opinion to submit a letter to the Court indicating its determined amount of coverage available to Plaintiff for actual loss of business income resulting from the July 19, 2006 incident in a manner consistent with this Opinion. Plaintiff's Cross-Motion for Summary Judgment seeking dismissal of Defendant's counterclaim is DENIED without prejudice to renewal, depending on the determination of business income coverage owed to Plaintiff. Plaintiff will have thirty (30) days from the date of Defendant's letter to renew its Motion, or this case will be closed. Plaintiff's Motion for Summary Judgment on its claim for declaratory judgment is GRANTED to the extent described herein. The Clerk of Court is respectfully directed to terminate Defendant's Motion (Docket # 9) and Plaintiff's Motion (Docket # 17).

SO ORDERED.