Opinion ID: 790588
Heading Depth: 3
Heading Rank: 2

Heading: Tying Restoration to the Site of the WTC Store

Text: 50 The district court held that the Restoration Period was necessarily tied to a hypothesized rebuilding of Duane Reade's store at its former site at the WTC. Both parties construe this ruling as extending the Restoration Period to include, at a minimum, the time it would take to build the WTC building in which Duane Reade's store would be located. We need not decide whether this interpretation is correct because, in any event, we conclude that the district court erred in tying the Restoration Period to the specific site of Duane Reade's former store at the WTC. 51 Duane Reade defends the district court's site-specific reading of the Restoration Period by asserting that the parties intended to protect Duane Reade's interest in the specific location of its valuable WTC store. As evidence of this intent, Duane Reade points to the BI clause's coverage for damage to Real or Personal Property whether insured or not, including ... property of others. Duane Reade characterizes this language as creating Contingent Business Interruption coverage that reimburses Duane Reade for BI losses that are caused by damage to property that is not owned by Duane Reade but upon which its business depends, i.e., the WTC building in which Duane Reade's store was located. Duane Reade also relies on a policy provision entitled Attraction Properties, which provides: 52 This policy is extended to cover the Actual Loss Sustained by [Duane Reade] directly resulting from the interruption of [Duane Reade]'s operation caused by damage to or destruction of Real or Personal property at Attraction Properties. 53 Attraction Properties are defined as properties within on[e] statute mile of [Duane Reade]'s location, not operated by [Duane Reade], which attract potential customers to [Duane Reade]'s location. 54 Duane Reade contends that the inclusion in the policy of these two coverages establishes site-specific coverage for BI losses Duane Reade suffers as a result of damage to property owned by third parties. We disagree with Duane Reade's reasoning. 55 Even if we assume that the St. Paul policy provides coverage for business interruption losses caused by damage to properties owned by others but upon which Duane Reade's business depends, Duane Reade did not file a claim for losses under either of these coverages following the destruction of the WTC. In addition, neither coverage alters or affects the critical language of the Restoration Period setting forth the mechanism for determining the duration of coverage. We conclude, therefore, that neither of these two coverages has any bearing on this case. 56 The primary flaw in Duane Reade's claim that the parties specifically intended to provide BI coverage until Duane Reade could resume operations at the site of its former WTC store, however, is that the St. Paul policy is a general one covering all 200 Duane Reade stores. It makes no reference to the WTC store or, for that matter, any specific property other than Duane Reade's main headquarters, which is listed on the policy's declarations page. This omission distinguishes this case from those cases, relied upon by Duane Reade, in which the court tied the length of business interruption coverage to the rebuilding and/or replacing of the specific property that was the subject of the insurance policy. 57 The BI clauses at issue in those cases specifically referred to the subject property, which typically was identified by address. For example, Anchor Toy Corp., a case relied upon by the district court, involved the destruction of a toy manufacturer's factory. The policy's BI clause provided coverage `if the building ... situate[d at] 784 Main Street, Coudersport, Potter County, Pa .... be destroyed ... by [a covered] peril[ ] ... so as to necessitate a total or partial suspension of business.' 155 N.Y.S.2d at 602. In turn, the policy's valuation provision ( i.e., restoration period) provided coverage `not exceeding such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the above described property as has been destroyed or damaged.' Id. at 603 (emphasis added); see also Omaha Paper Stock Co. v. Harbor Ins. Co., 596 F.2d 283, 285 (8th Cir.1979) (policy tied length of restoration to `time ... it would take ... to repair and/or replace the property herein described, ' referring to the property identified in the declarations page as `the premises ... situated at 1401 Laird Street') (emphasis added); Beautytuft, Inc., 431 F.2d at 1123 (policy tied restoration period to theoretical time to rebuild `described property'); Steel Prods. Co. v. Millers Nat. Ins. Co., 209 N.W.2d 32, 33-34 (Iowa 1973) (policy tied restoration period to rebuilding `the property herein described'); Hawkinson Tread Tire Serv. Co. v. Ind. Lumbermens Mut. Ins. Co., 362 Mo. 823, 245 S.W.2d 24, 25-26 (1951) (policy tied restoration period to rebuilding of `the described building, and machinery and equipment contained therein, situated at 1119-23 North Twelfth Street'). 58 By contrast, the physical premises of the WTC building in which Duane Reade's store was located was not the subject of the St. Paul policy. Nor was the WTC even mentioned by name, as might be expected had the parties intended to single out the WTC store in a policy that covered all of Duane Reade's 200 stores. Instead, the declarations page lists only Duane Reade's corporate address, and no specific property is referred to in the BI clause, which omits even generic terms for location, such as premises, site, or building. Thus nothing in the BI clause supports Duane Reade's claim that it provides site-specific coverage for its WTC store. 59 Our interpretation of the Restoration Period is consistent with the only case we have found that addresses the length of a restoration period in the context of leased premises that are contained within a larger building, Streamline Capital, L.L.C. v. Hartford Casualty Insurance Co., No. 02 CIV. 8123(NRB), 2003 WL 22004888 (S.D.N.Y. Aug 25, 2003). In Streamline, offices that the insured, a computer facilities management company, had leased in the WTC were destroyed on 9/11. Judge Buchwald rejected the insured's argument that the restoration period for its BI coverage extended until the WTC was rebuilt. Distinguishing cases like Anchor Toy, the district court held, 60 Given that premises in the phrase property at the described premises [in the policy's restoration period clause] means plaintiff's office suite, the only reasonable construction of the word property [in that same phrase] is [that it means] the plaintiff's own personal property — computers, desks, chairs, etc. This interpretation is logical, given that the Policy's Business Income coverage states: We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your `operations' during the `period of restoration.' That the business income coverage only applies to the suspension of the plaintiff's operations indicates that it is dependent only on replacing what is necessary to resume those operations — namely, the plaintiff's personal property, not a specific office at a specific location. 61 Id. at . 62 We agree with Judge Buchwald's reasoning and find it equally applicable to the present case. As in Streamline, the St. Paul policy says nothing about the specific location of the interrupted business. It simply provides coverage until Duane Reade can repair, rebuild, or replace the property that was damaged and resume operations. Also in line with Streamline, the damaged property is the property Duane Reade had located in the premises it leased from the WTC. 63 Doubtless, if awaiting the rebuilding of the WTC and moving Duane Reade's WTC store to a new location were roughly equivalent tasks, the BI coverage would extend to whichever task Duane Reade, in its discretion, chose to do. The rebuilding of the WTC, however, will be a herculean undertaking far exceeding the rebuilding of a Duane Reade store in an existing building, or even in an as-yet-to-be built Manhattan office building, and involving numerous and complex contingencies over which neither Duane Reade nor St. Paul has any control. Under these circumstances, it would be entirely unreasonable to interpret the Restoration Period to include the time it would take for Duane Reade to resume operations in a store located at its former site where that site was neither the subject of the insurance policy nor expressly provided for in the calculus set forth in the Restoration Period. See Streamline, 2003 WL 22004888, at - (It is wholly unreasonable to think that the period of restoration should be tied to the rebuilding of real property over which neither the insured nor the insurer had any control, instead of tying it to a process that the plaintiff controlled: the acquisition of replacement office space and the installation of the plaintiff's personal property in that space.); Roundabout Theatre Co., 751 N.Y.S.2d at 7-8 (rejecting plaintiff's claim that the Restoration Period extended until damage that occurred on the street and prevented access to theater was repaired because the insured obviously has no duty to repair a third party's property); Anchor Toy, 155 N.Y.S.2d at 603 (holding that while insured was entitled to modernize its new building, [d]oubtless if an extraordinary additional time would be required to include improvements or innovations these would not be included.); see also Cong. Bar & Res., Inc. v. Transamerica Ins. Co., 42 Wis.2d 56, 165 N.W.2d 409 (1969) (holding that restoration beyond what is reasonably necessary to restore the premises to its previous condition, such as demolition or reconstruction, are irrelevant and cannot be used to extend the period of compensation). In light of the foregoing, we conclude that the district court erred in holding that the St. Paul policy indemnifies Duane Reade for BI losses until the interrupted business can be resumed at the same location. 64 We find further support for this conclusion in the fact that the policy does, in fact, address the kind of site-specific losses Duane Reade seeks under the BI coverage in its provisions for the real-property coverage entitled Leasehold Interest. 5 The Leasehold Interest coverage substantiates Duane Reade's contention that the parties intended to protect Duane Reade's profit-generating store locations. As we explain, however, the precise coverage provided by the Leasehold Interest clause is decidedly different than the one Duane Reade seeks under the policy's BI clause. 65 Under the Leasehold Interest clause, coverage is extended for the Actual Loss Sustained in the event that a lease is terminated due to necessary untenantability arising from destruction of leased premises by a covered peril. That is precisely the circumstance here. Although some leases require the landlord to rebuild the leased premises if they are destroyed, see, e.g., Hotel des Artistes, Inc. v. Gen. Acc. Ins. Co., 9 A.D.3d 181, 775 N.Y.S.2d 262, 264 (App. Div. 1st Dep't 2004) (duty-to-defend case where underlying suit brought by lessee against landlord for breach of duty to repair that caused denial of lessee's business interruption claim), Duane Reade's lease for the WTC store did not. Instead, it gave Duane Reade's landlord, the Port Authority of New York and New Jersey (Port Authority), discretion to either rebuild destroyed property or terminate the lease if the necessary repairs would take more than 90 days to complete. At oral argument, the parties informed us that the Port Authority chose the latter option and terminated Duane Reade's lease shortly after 9/11 on the grounds of necessary untenantability. Under the valuation provision of the Leasehold Interest clause, 6 the cancellation of the WTC leasehold entitled Duane Reade to reimbursement for the loss of the WTC site's actual rental value ( i.e., its intrinsic value) less the rents and expenses Duane Reade would have had to pay, but only until the lease would have expired of its own accord. 66 That it is the Leasehold Interest clause, and not the BI clause, that protects Duane Reade's interest in the WTC site is also a matter of common sense. A leasehold is a property interest; its cancellation deprives the owner of the right to inhabit or make use of that particular location, with all its attendant benefits. When such cancellation also interrupts a business, the losses caused specifically by the interruption will end shortly after the business resumes, whether at the original site or a new one. A company may, however, experience additional losses that are caused, not by the interruption, but by the relocation of a business and the concurrent loss of benefits of the original site, such as increased foot traffic, entrenched customer base, or superior location. While this is the type of loss that was targeted by Duane Reade's demand for BI coverage until the entire WTC complex is reopened, and was partially accommodated by the district court's declaration, the BI clause does not address such loss. Rather, it is addressed exclusively by the Leasehold Interest clause. 67 In sum, we hold that the St. Paul policy does not provide BI coverage until Duane Reade can resume operations in a store located at its former WTC site. Instead, coverage extends only for the hypothetical time it would reasonably take Duane Reade to repair, rebuild, or replace its WTC store at a suitable location. To be sure, there are few if any locations in New York City comparable to the WTC, and Duane Reade will most likely not be able to recreate the profit stream it once enjoyed there. But any discrepancies between the new building and the WTC in terms of benefits and advantages are exclusively accounted for under the Leasehold Interest clause. 68 We therefore modify the district court's construction of the Restoration Period in order to effectuate the policy's separate treatment of loss due to business interruption and losses due to the cancellation of a leasehold. To that end, we eliminate the district court's restriction of location, i.e., rebuilding the WTC store at its former site, as well as its emphasis on rebuilding, despite the BI clause's broader reference to repair[ing], rebuild[ing], or replac[ing], which together impermissibly extended Duane Reade's BI coverage to include injury caused by Duane Reade's loss of the WTC leasehold.