Court Opinion

ID: 9956346
Source: CourtListenerOpinion
Date Created: 2024-04-01 20:12:07.442051+00
Date Added: 2024-06-11T08:15:53.259240
License: Public Domain

Broadwall Mgt. Corp. v Federal Ins. Co.
               2024 NY Slip Op 31032(U)
                     March 27, 2024
           Supreme Court, New York County
        Docket Number: Index No. 656468/2021
                  Judge: Andrea Masley
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
 Op 30001(U), are republished from various New York
 State and local government sources, including the New
  York State Unified Court System's eCourts Service.
 This opinion is uncorrected and not selected for official
                       publication.
                                                                                                                         INDEX NO. 656468/2021
  NYSCEF DOC. NO. 76                                                                                               RECEIVED NYSCEF: 03/27/2024

            SUPREME COURT OF THE STATE OF NEW YORK
            COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48
            ----------------------------------------------------------------------------------- X

             BROADWALL MANAGEMENT CORP., CRESCENT LAND                                               INDEX NO.         656468/2021
             DEVELOPMENT ASSOCIATES, LLC, NORTH
             RIVERSIDE PARK ASSOCIATES, LLC,261 FIFTH
             AVENUE, LLC, NORMANDY 261 FIFTH AVENUE, LLC,                                            MOTION DATE
             QUENTIN ROOSEVELT ASSOCIATES, LLC,
             FROEHLICH ASSOCIATES, LLC,2001 MARCUS                                                   MOTION SEQ. NO.        001
             AVENUE, LLC, PINE VALLEY ASSOCIATES LLC, and
             FEIL-BLS, LLC,
                                                                                                       DECISION+ ORDER ON
                                                          Plaintiffs,                                        MOTION

                                                - V -

             FEDERAL INSURANCE COMPANY,

                                                          Defendant.

            ----------------------------------------------------------------------------------- X

            HON. ANDREA MASLEY:

            The following e-filed documents, listed by NYSCEF document number (Motion 001) 7, 8, 9, 10, 11, 12,
            13, 14, 15, 16, 17, 18, 19, 20,21, 22,23,24,25,26,27,28,29, 30, 31, 32, 33, 34,35, 36, 37, 38, 39,
            40,41,43,44,45,46,47,48,49, 50,51,52,53,54,55,56,57,58,59, 60, 61, 62,63, 64, 65, 66, 67,
            68, 69, 70, 71, 72, 73, 74, 75
            were read on this motion to/for                                                         DISMISSAL

            Upon the foregoing documents, it is

                      In motion sequence no. 001, defendant Federal Insurance Company moves

            pursuant to CPLR 3211 (a) (1) and (7) to dismiss this action. Plaintiffs cross-move

            pursuant to CPLR 3025 (b) to amend the complaint to add the fungus provisions of the

            insurance policy at issue as a basis for coverage.

            Background

                      Unless indicated otherwise, the following facts are taken from the complaint and,

            for the purposes of this motion, are accepted as true. Plaintiffs own and manage a

            portfolio of real estate properties. (NYSCEF Doc. No. [NYSCEF] 13, Complaint ,i 1.)

             656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE                                         Page 1 of 11
             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                                   RECEIVED NYSCEF: 03/27/2024

            On May 15, 2019, plaintiffs procured an "all risk" insurance policy (Policy) from

            defendant for their real estate properties. (Id. ,i 3.) The Policy was effective from May

            15, 2019 to May 20, 2020 and was in full force and effect during the Covid-19

            pandemic. (Id.) Several states issued closure orders to curb the spread of the Covid-

            19 virus. (Id. ,i 7.) Due to the closure orders and the spread of the Covid-19 virus,

            plaintiffs' tenants stopped paying rent because they were not able to utilize the

            properties. (Id. ,i 8.) Plaintiffs incurred great economic damage and claimed coverage

            under the Policy for damages incurred between April 1, 2020 through May 6, 2020. (Id.

            ,i,i 8, 62.) The Policy provides "coverage for, inter alia, physical loss or damages, as

            well as losses of income due to business interruption." (Id. ,i 53; see generally NYSCEF

            12, Policy.) Defendant failed to respond to plaintiffs' claim within the time prescribed by

            Insurance Law§ 216.6, leading plaintiffs to bring this action for breach of contract. (Id.

            ,i,i 63-65.) In their complaint, plaintiffs rely on the following provisions of the Policy:

                      "Building And Personal Property

                      We will pay for direct physical loss or damage to:

                  •   building; or
                  •   personal property,

                      caused by or resulting from a peril not otherwise excluded, not to exceed
                      the applicable Limit of Insurance for Building or Personal Property shown
                      in the Declarations." (NYSCEF 12, Policy at 471; NYSCEF 13, Complaint ,i
                      56.)

                      "Business Income With Extra Expense

                      Business Income And Extra Expense

                      We will pay for the actual:

            1
                NYSCEF pagination
                656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE            Page 2 of 11
                COMPANY
                Motion No. 001

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  NYSCEF DOC. NO. 76                                                              RECEIVED NYSCEF: 03/27/2024

               •   Business income loss you incur due to the actual impairment of your
                   operations; and
               •   Extra expense you incur due to the actual or potential impairment of your
                   operations,

                   during the period of restoration, not to exceed the applicable Limit Of
                   Insurance for Business Income With Extra Expense shown in the
                   Declarations.

                   This actual or potential impairment of operations must be caused by or
                   result from direct physical loss or damage by a covered peril to property,
                   unless otherwise stated." (NYSCEF 12, Policy at 76; NYSCEF 13,
                   Complaint ,i 57.)

                   "Civil Authority

                   We will pay for the actual:

               •   business income loss; or
               •   extra expense,
                   you incur due to the actual impairment of your operations, directly caused
                   by the prohibition of access to:
               •   your premises; or
               •   a dependent business premises,
                   by a civil authority.

                   This prohibition of access by civil authority must be the direct result of
                   direct physical loss or damage to property away from such premises or
                   such dependent business premises by a covered peril, provided such
                   property is within:

               •   one mile; or
               •   the applicable miles shown in the Declarations,

                   from such premises or dependent business premises, whichever is
                   greater." (Id. at 78-79.) The Policy also stipulates that all "words and
                   phrases that appear in bold print have special meanings and are defined
                   in the Property/Business Income Conditions And Definitions form".
                   (NYSCEF 12, Policy at 78-79; NYSCEF 13, Complaint ,i 58.)

                   Plaintiffs cross-move to amend the complaint to include additional provisions of

            the Policy which they assert provide coverage for the losses incurred. Specifically,

            plaintiffs seek to amend the complaint to add Policy provisions that provide coverage for

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             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                               RECEIVED NYSCEF: 03/27/2024

            loss from, or the clean up or removal of, fungus at plaintiffs' premises. (Fungus

            Provisions). The plaintiffs seek to add and rely on the following Fungus Provisions:

                   "Business Income With Extra Expense
                   Fungus Clean-up Or Removal

                   We will pay for the actual:

               •   business income loss; and
               •   extra expense,

                   you incur due to the actual impairment of your operations during the
                   period of restoration, not to exceed the applicable Limit of Insurance for
                   Business Income With Extra Expense shown in the Declarations.

                   This actual impairment of operations must be caused by or result from
                   the presence of fungus at your premises shown in the Declarations.
                   Coverage will begin immediately after the date the fungus first appeared
                   and will end

               •   45 consecutive days after this coverage begins; or
               •   when your business income coverage ends,

                   whichever occurs first

                   This Premises Coverage does not apply if the presence of fungus:

                   A. is caused by or results from:
                   1. a peril that is not a covered peril; or
                   2. moisture, other than water or flood, if flood would be covered under
                   this insurance;
                   B. existed prior to the effective date shown in the Declarations;
                   C. is not reported to us in writing as soon as possible after you first
                   become aware, or in the exercise of reasonable care should have been
                   aware, of the presence of fungus; or
                   D. is at premises shown under Excluded Premises in the Declarations."
                   (NYSCEF 12, Policy at 76-77; NYSCEF 47, Proposed Amended
                   Complaint Redline Copy ,i 61.)

                   "Extra Expense

                   Fungus Clean-up Or Removal

                   We will pay for the actual extra expense you incur due to actual
                   impairment of your operations during the period of restoration, not to
             656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE           Page 4 of 11
             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                               RECEIVED NYSCEF: 03/27/2024

                   exceed the applicable Limit Of Insurance For Extra Expense shown in the
                   Declarations.

                   This actual impairment of operations must be caused by or result from
                   the presence of fungus at your premises shown in the Declarations.
                   Coverage will begin immediately after the date the fungus first appeared
                   and will end:

               •   45 consecutive days after this coverage begins; or
               •   when your impairment of operations ends,

                   whichever occurs first.

                   This Premises Coverage does not apply if the presence of fungus:

                   A. is caused by or results from·
                   1. a peril that is not a covered peril; or
                   2. moisture, other than water or flood, if flood would be covered under
                   this insurance;

                   B. existed prior to the effective date shown in the Declarations;

                   C. is not reported to us in writing as soon as possible after you first
                   become aware, or in the exercise of reasonable care should have been
                   aware, of the presence of fungus; or

                   D. is at premises shown under Excluded Premises in the Declarations."
                   (NYSCEF 12, Policy at 107-108; NYSCEF 47, Proposed Amended
                   Complaint Redline Copy ,i 60.)

            The Policy defines fungus as

                   "Fungus means any:

                   A.     1. mildew, mold, or other fungi;
                          2. other microorganisms; or
                          3. any mycotoxins, spores, or other by-products of the foregoing; or

                   B. Colony or group of any of the foregoing." (NYSCEF 12, Policy at 148.)

                   Plaintiffs claim that the SARS-CoV-2 virus has been characterized as a

            microorganism by several infectious disease experts and as such is a fungus for the

            purposes of the Policy.

             656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE         Page 5 of 11
             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                                RECEIVED NYSCEF: 03/27/2024

            Discussion

            Defendant's Motion to Dismiss

                   On a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must "accept the

            facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible

            favorable inference, and determine only whether the facts as alleged fit within any

            cognizable legal theory." (Leon v Martinez, 84 NY2d 83, 87-88[1994] [citation omitted].)

            To prevail on a CPLR 3211 (a)(1) motion to dismiss, the movant has the "burden of

            showing that the relied-upon documentary evidence resolves all factual issues as a

            matter of law, and conclusively disposes of the plaintiff's claim." (Fortis Fin. Servs. v

            Fimat Futures USA, 290 AD2d 383, 383 [1st Dept 2002] [internal quotation marks and

            citation omitted].) "A cause of action may be dismissed under CPLR 3211 (a)(1) only

            where the documentary evidence utterly refutes [the] plaintiff's factual allegations,

            conclusively establishing a defense as a matter of law." (Art and Fashion Group Corp. v

            Cyclops Prod., Inc., 120 AD3d 436, 438 [1st Dept 2014] [internal quotation marks and

            citation omitted].)

                   The Policy provisions relied upon by plaintiffs in the complaint require a showing

            of 'physical loss or damage' to be triggered. Defendant contends that this requires a

            physical problem with the covered property and not merely loss of use, and thus, Covid-

            19 did not cause direct physical loss or damage.

                   In Consolidated Rest. Operations, Inc. v. Westport Ins. Corp., 205 AD3d 76, 78

            (1st Dept, 2022), affd ___ NY3d ___ , 2024 NY Slip Op 00795 (2024), the Appellate

            Division, First Department held that

                   "where a policy specifically states that coverage is triggered only where
                   there is direct physical loss or damage to the insured property, the policy
             656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE            Page 6 of 11
             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                                  RECEIVED NYSCEF: 03/27/2024

                      holder's inability to fully use its premises as intended because of COVID-
                      19, without any actual, discernable, quantifiable change constituting
                      physical difference to the property from what it was before exposure to the
                      virus, fails to state a cause of action for a covered loss."

            The First Department further observed that conclusory assertions that Covid-19 caused

            physical damage to the insured property fail to state a basis for coverage where the

            policy requires "direct physical loss or damage" to the property to trigger coverage. (Id.

            at 83.)

                      In February 2024, the Court of Appeals affirmed the First Department's decision.

            ( Consolidated Rest. Operations, Inc. v Westport Ins. Corp., ___ NY3d ___ , 2024 NY Slip

            Op 00795, *8 [2024] ["we conclude that CRO did not sufficiently allege 'direct physical

            loss or damage"'].) The Court of Appeals held that "'Physical damage' must be

            understood to require a material physical alteration to the property-one that is

            perceptible, even if not visible to the naked eye." (Id. at *4 [citation omitted].) In regard

            to a direct physical loss, the Court of Appeals found coverage for direct physical loss

            cannot be collapsed into coverage for loss of use, opining that "[l]osing a thing is

            conceptually different than losing the functional use of that thing for a period of time."

            (Id. [internal quotation marks and citations omitted].) The Court concluded that a

            "'[d]irect physical loss"' thus requires more than loss of use; it requires an actual,

            complete dispossession." (Id.)

                      Thus, Consolidated Restaurant precludes plaintiffs from relying upon Policy

            provisions which require a showing of direct physical loss or damage when seeking

            damages incurred only due to an inability to use the insured premises due to the Covid-

            19 pandemic. Plaintiffs conceded this at argument. (NYSCEF 77, tr at 5:24-6:3 ["If the

            Court of Appeals doesn't reverse Consolidated Restaurant, I agree that under current
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             COMPANY
             Motion No. 001

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            precedent, I have no ability to advocate successfully a loss of use theory as it relates to

            what physical loss or damage means"].) Therefore, defendant's motion to dismiss is

            granted.

            Plaintiffs' Cross-Motion to Amend

                       "[L]eave to amend a pleading should be freely granted in the absence of

            prejudice to the nonmoving party where the amendment is not patently lacking in merit .

            . . , and the decision whether to grant leave to amend a complaint is committed to the

            sound discretion of the court." (Davis v S. Nassau Communities Hosp., 26 NY3d 563,

            580, [2015] [internal quotation marks and citations omitted]; see also CPLR 3025 [b].)

            "[A] proposed amendment that cannot survive a motion to dismiss should not be

            permitted." (0/am Corp. v Thayer, 2021 NY Slip Op 30345[U], *2 [Sup Ct, NY County

            2021] [internal quotation marks and citations omitted].) "A proposed amended

            complaint that would be subject to dismissal as a matter of law is, by definition, 'palpably

            insufficient or clearly devoid of merit' and thus should not be permitted under CPLR

            3025." (Id. at 3-4.)

                   Plaintiffs now seek leave to amend the complaint to add the Fungus Provisions

            as a basis for coverage. These provisions provide coverage for loss of business

            income due to the impairment of operations at the insured properties, as well as actual

            extra expense incurred due to actual impairment of operations during a period of

            restoration, due to the presence of fungus. Plaintiffs contend that the Fungus

            Provisions do not require a finding of 'physical loss or damage' to trigger coverage.

            Defendant disagrees. Defendant also argues that plaintiffs failed to comply with the

            Policy's notice requirements as they provided no notice of the presence of fungus at the

             656468/2021 BROADWALL MANAGEMENT CORP. ET AL vs. FEDERAL INSURANCE            Page 8 of 11
             COMPANY
             Motion No. 001

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            insured properties. Lastly, defendant contends that the Covid-19 virus is not a fungus

            as defined in the Policy.

                   "Under New York law, insurance contracts are construed by applying
                   general principles of contract interpretation. A contractual provision is
                   unambiguous if its language has a definite and precise meaning,
                   unattended by danger of misconception in the purport of the policy itself,
                   and concerning which there is no reasonable basis for a difference of
                   opinion. Unambiguous provisions of an insurance contract, like any
                   contract, "must be given their plain and ordinary meaning, and the
                   interpretation of such provisions is a question of law for the court."
                   (Consolidated Rest. Operations, Inc, ___ NY3d ___ , 2024 NY Slip Op
                   00795, *4 [internal quotation marks and citations omitted].)

            The Business Income and Extra Expense Fungus Provisions only provide coverage for

            loss of business income and extra expense incurred due to the "actual impairment of

            operations" during the "period of restoration." (NYSCEF 12, Policy at 76, 107.) As

            defined in the Policy, the term "period of restoration" envisages "direct physical loss or

            damage" to the insured properties. (Id. at 154 ["Period of restoration means the

            period of time that, for business income, begins: A. immediately after the time of direct

            physical loss or damage by a covered peril to property; or B. on the date operations

            would have begun if the direct physical loss or damage had not occurred .... Period of

            restoration means the period of time that, for extra expense, begins immediately after

            the time of direct physical loss or damage by a covered peril to property."].) Even

            though the Business Income and Extra Expense Fungus provisions do not explicitly

            mention direct physical loss or damage, the provisions are only applicable in the context

            of a period of restoration with such period of restoration resulting from physical loss or

            damage that must be repaired or replaced. (Id.)

                     Period of restoration is a defined term as quoted above. The provisions at

            issue, which provide coverage only for loss incurred during the period of restoration, are
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             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                               RECEIVED NYSCEF: 03/27/2024

            to be interpreted in the context of the meaning assigned to the term period of restoration

            by the parties. These provisions therefore only apply and provide coverage in the event

            of a physical loss or damage to the insured properties. In coming to this conclusion, the

            court has not artificially added the terms physical loss or damage to the provisions in

            issue; rather, it has interpreted these provisions in accordance with the standard

            principles of contract interpretation.

                     Plaintiffs' reliance on Deer Mt. Inn LLC v Union Ins. Co., 541 F Supp 3d 235

            (NDNY 2021) is unavailing. In a footnote, the NDNY Court stated,

                   "Plaintiff also argues that [h]ad [Defendant] intended loss to require
                   physical alteration of the property, it should have written a definition for
                   physical loss into the policy to say that, not slipped a definition or
                   qualification upon loss through the back door in the definition of a separate
                   term in the policy. Plaintiff's arguments miss the mark. The phrase direct
                   physical loss of or damage to property unambiguously excludes the losses
                   Plaintiff complains of here even without considering the period of
                   restoration definition, because those losses are simply not direct physical
                   losses within the ordinary meaning of that phrase. The period of
                   restoration definition thus does not render an otherwise ambiguous phrase
                   unambiguous by slipp[ing] a definition or qualification upon loss through
                   the back door; rather, when viewed together with the language limiting
                   coverage to direct physical loss of or damage to property, it merely further
                   demonstrates that the Policy as a whole contemplates coverage only for
                   losses that are physical in nature. (Deer Mt. Inn LLC v Union Ins. Co., 541
                   F Supp 3d at 247, n 13 [internal quotation marks and citation omitted].)

            In Deer Mountain Inn, the business income and extra expenses provisions at issue

            contained the language direct physical loss or damage; the NDNY Court found

            additional support in the definition of the period of restoration which contemplated

            physical loss or damage to hold that the provisions did not provide coverage in the

            absence of any direct physical damage to the insured properties. (Deer Mt., 541 F

            Supp 3d at 246-247.) The NDNY Court did not reject an attempt to read coverage limits

            into the term period of restoration as plaintiffs suggest.
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             COMPANY
             Motion No. 001

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  NYSCEF DOC. NO. 76                                                                      RECEIVED NYSCEF: 03/27/2024

                      Here, the Fungus Provisions do require direct physical loss or damage, and as

            discussed above, Consolidated Restaurant precludes plaintiffs from relying upon

            provisions of the Policy which require a showing of direct physical loss or damage.

            (Consolidated Rest. Operations, Inc., 2024 NY Slip Op 00795, *4.) A mere inability to

            use a property does not trigger coverage under provisions requiring direct physical loss

            or damage. (Id. [holding that '"[d]irect physical loss' thus requires more than loss of use;

            it requires an actual, complete dispossession"].) Thus, plaintiffs' cross-motion to amend

            the complaint to add a claim under the Fungus Provisions is "clearly devoid of merit"

            and is denied to this extent. (Olam Corp., 2021 NY Slip Op 30345[U], *4.)

            Accordingly, it is

                    ORDERED that defendant's motion to dismiss the complaint herein is granted

            and the complaint is dismissed in its entirety as against said defendant, with costs and

            disbursements to said defendant as taxed by the Clerk of the Court, and the Clerk is

            directed to enter judgment accordingly in favor of said defendant; and it is further

                    ORDERED that the plaintiffs' motion for leave to amend the complaint is denied.

                    3/27/2024
                      DATE                                                    ANDREA MASLEY, J.S.C.
             CHECK ONE:                CASE DISPOSED                  NON-FINAL DISPOSITION

                                       GRANTED         □ DENIED       GRANTED IN PART          □ OTHER
             APPLICATION:              SETTLE ORDER                   SUBMIT ORDER

             CHECK IF APPROPRIATE:     INCLUDES TRANSFER/REASSIGN     FIDUCIARY APPOINTMENT    □ REFERENCE

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             COMPANY
             Motion No. 001

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