Opinion
14465 2007.
Decided December 9, 2010.
Joseph Deliso Associates, by Joseph A. Deliso, Esq., Brooklyn, NY, for Plaintiff.
Armienti, DeBellis, Guglielmo Rhoden, LLP, by John M. Guglielmo, Esq., Mineola, NY, for Defendant.
Defendant Associated Mutual Insurance Cooperative issued an insurance policy to plaintiff Massacor, Inc., the operator of a restaurant located at 33-05 Francis Lewis Boulevard, Flushing, New York effective from August 20, 2006 to August 20, 2007. The policy provided "Loss of Earnings" coverage which, in the event of a covered cause of loss, obligated the insurer to indemnify for the restaurant's income and expenses up to $15,000.00 each 30-day period for six months, with a limit of $90,000.00.
The Loss of Earnings Endorsement provided in relevant part: "We [Associated Mutual] pay for Loss of Earnings when your earnings are interrupted by a covered cause of loss ***." "We [Associated Mutual] pay for: Your actual loss of earnings resulting directly from necessary interruption of business. This loss will not be more than the reduction in earnings less charges and expenses that do not necessarily continue." The policy defined "Earnings" to be "the total of net profit, payroll expenses, taxes, interest, rents and all other operating expenses earned by the business."
On October 18, 2006, a fire occurred at the restaurant, forcing plaintiff Massacor to cease doing business, although the plaintiff alleges that expenses such as rent, loan payments, taxes, and insurance continued. Massacor promptly gave notice of the fire to the insurer, which to date has paid $105,864.74 on the claim pursuant to the business property loss provisions of the policy. However, the insurer and the insured cannot agree on the amount of indemnification the former owes to the latter under the Loss of Earnings Endorsement. Defendant Associated Mutual contends: "From day one, regarding this claim, the sole issue in this case is what is the correct calculation, if any, of the loss of earnings' claim under the policy."
This lawsuit ensued on or about June 6, 2007. According to the plaintiff, the failure of the defendant insurer to indemnify for rent owed under the lease and for other expenses forced the restaurant to close permanently. The plaintiff's first cause of action seeks a judgment declaring that the defendant insurer is obligated to indemnify the plaintiff for $90,000.00 under the loss of earnings endorsement. Pursuant to a decision and order dated August 11, 2008 (one paper), this Court denied a motion by the plaintiff for, inter alia, summary judgment on its first cause of action without prejudice to renewal after the completion of disclosure. The parties have now completed disclosure.
Defendant now moves for summary judgment.
The purpose of business interruption insurance is "to return to the insured that amount of profit that would have been earned during the period of interruption had a casualty not occurred * * * ." ( Pennbarr Corp. v Insurance Co. of North America, 976 F2d 145, 154 [3rd Cir. 1992]). Consistent with this purpose, the policy issued by defendant Associated Mutual provided that the indemnifiable loss "will not be more than the reduction in earnings less charges and expenses that do not necessarily continue." (Italics added.) Pursuant to this and similar insurance provisions, an insured's expenses which do not continue during the period that a business is interrupted are not recoverable. ( See, Maple Leaf Motor Lodge, Inc. v Allstate Ins. Co., 53 AD2d 1045 [4th Dept. 1976]; Associated Photographers, Inc. v Aetna Cas. Sur. Co., 677 F2d 1251 [8th Cir. 1982]; Annot., "Business Interruption Insurance," 37 ALR 5th 41.)
"[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." ( Alvarez v Prospect Hospital, 68 NY2d 320, 324). The defendant, upon the foregoing papers, the insurer failed to carry this burden.
First, pursuant to the terms of the insurance policy, the defendant insurer had an obligation to indemnify the plaintiff for the latter's lost net profit, if any, plus charges and expenses that "necessarily continue[d]" after the fire. While the plaintiff operated the restaurant at a loss in 2005 and 2006 (there were allegedly major start-up costs), the court does not interpret the policy in such a manner that the plaintiff first had to show a profit before charges and expenses that necessarily continued were recoverable. The policy protected "earnings" of which net profit formed just a part.
Second, there is an issue of fact concerning whether the defendant breached the policy by not indemnifying the plaintiff for sums owed pursuant to (1) a $200,000.00 promissory note and (2) a bank loan. The plaintiff's attorney states at page 4 of his affirmation: "The defendant was provided with the promissory note, yet still does not understand that payment on such legal instrument continues into the future and the earnings that the policy was to protect was to be used in part to pay the monthly amount under the instrument."
As the Court construes the policy, it does not obligate the insurer to cover the interest payments on the promissory note only if the insured can produce proof of payment. The policy provides in relevant part: "Loss Determination: (1) The amount of loss of earnings will be determined based on: * * * (d) Other relevant sources of information including: 1. Your financial records and accounting procedures; 2. Bills, invoices, and other vouchers; (3) Deeds, liens, and contracts." The policy does not state that only cancelled checks are proof of continuing expenses. A promissory note is a contract and, as such, acceptable proof of continuing loss pursuant to section (1)(d)(3). Moreover, in regard to the business loan, Allison Strocco, the plaintiff's principal, testified at her deposition that the plaintiff continued to make monthly payments to Astoria Federal even after the fire. When asked if she was paying the loan, she replied: "Absolutely."
Third, there is an issue of fact concerning whether the defendant breached the policy by failing to indemnify the plaintiff for rent owed pursuant to its lease. At the time of the fire, the plaintiff had thirteen years remaining on the term of its lease. Kathleen Giustiniani, the insurer's representative, admitted at her deposition that if the lease obligated the plaintiff to pay rent, the policy would cover that expense. However, when asked at her deposition, "What did Associated Mutual do in terms of its investigations into this claim to determine whether or not there was an obligation of Massacor to pay rent?" Giustiniani responded, "I do not know." (Tr. 78-79.) She admitted that she did not even read the lease, even though the plaintiff supplied the insurer with a copy.
Mark C. Perlmutter, a certified public accountant retained by the insurer, did read the lease, and he has concluded that Paragraph 9A of the lease, "Destruction, Fire and Other Casualty," relieved the plaintiff of its obligation to pay rent after the fire. Paragraph 9A provides in relevant part: "If the demised premises are partially damaged or rendered partially unusable by fire * * * the rent * * * until such repair shall be substantially completed shall be apportioned * * * according to the part of the premises which is usable. (c) If the demised premises are totally damaged * * * by fire * * * the rent * * * shall be proportionately paid up to the time of the casualty and thereafter shall cease until the date when the premises have been restored by owner."
Paragraph 9A cannot be read in isolation from the other evidence in this case. According to the plaintiff, the fire damaged the interior of the restaurant, but not the structure of the building, and her obligation to pay rent allegedly continued. The extent of the damage cannot be determined on this motion. Moreover, Strocco testified that after the fire, she had to reach an agreement with the landlord regarding the continuation of the lease and the payment of rent. The landlord initially took the position that the fire terminated the lease, allegedly one favorable to the tenant, but, according to Strocco, after the plaintiff retained an attorney, "he [the landlord] agreed that I did have a right to go back in because the establishment was not deemed uninhabitable." However, as a condition, the landlord demanded that the plaintiff continue paying rent even though the restaurant was not in operation.
Strocco testified that the plaintiff could not do this because the insurer had refused to make funds available to her. In view of all of the evidence in this case, there is an issue of fact concerning whether the insurer breached the policy by failing to cover the rent owed under the lease, and Paragraph 9A of the lease and the absence of proof of payment found by the insurer's certified public accountant do not by themselves entitle the defendant to judgment as a matter of law.
Fourth, there is an issue of fact concerning whether the defendant breached the policy by failing to cover payroll expenses after the fire. The defendant did not establish its entitlement to judgment as a matter of law merely because its accountant did not find proof that the plaintiff actually paid salaries after the fire. Strocco testified that she needed funds from the insurer to do so, and the plaintiff showed at least prima facie that the policy obligated the insurer to make those funds available.
The policy provided in relevant part: "The amount of loss of earnings will be determined based on: * * * (c) The operating expenses, including payroll expenses, necessary to resume operations with the same quality of service that existed just before the direct physical loss or damage * * * ." The plaintiff produced evidence that because of the defendant's failure to cover salaries, it could not retain the chef who, in effect, "was the restaurant" and therefore could not "resume operations with the same quality of service * * *."
The defendant's motion for summary judgment to dismiss the complaint is denied.
The foregoing constitutes the decision, order, and opinion of the Court.