Case 2:14-cv-06333-JS-ARL Document 1 Filed 10/28/14 Page 1 of 13 PageID #: 131

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
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MONTAJ, INC.,
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:
Plaintiff,
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:
- against :
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ACE AMERICAN INSURANCE COMPANY,
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:
:
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Defendant.
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Case No.

COMPLAINT

Plaintiff Montaj, Inc. (Plaintiff or the Insured), by and through its attorneys, Napoli
Bern Ripka Shkolnik LLP, as and for its complaint against Defendant ACE American Insurance
Company (Defendant or Insurer) herein alleges as follows:
NATURE OF THE ACTION
1.

This is an action to recover certain amounts due under an insurance policy issued

by Defendant to Plaintiff to protect its business assets and operations. The insurance policy at
issue is a Corporate Risk Domestic Property Policy.
2.

Superstorm Sandy caused severe devastation and substantially damaged

Plaintiffs business, which was covered by an ACE American Insurance Company commercial
insurance policy. In response to Plaintiffs claim under its commercial policy, Defendant
improperly denied Plaintiffs claim for business interruption losses and business personal
property damage, which were caused by an act of civil authority, the loss of utility services and
water backup as a result of Superstorm Sandy.
3.

Defendant improperly and in bad faith determined that Plaintiffs business

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interruption and property damage were allegedly caused by flooding and/or surface water or
were otherwise excluded under the Policy.
4.

Plaintiff bargained for the protections the policy offered including important

business interruption and property coverage and paid all of the premiums due for that expected
coverage. Nonetheless, when Plaintiff suffered business interruption losses and related damages
from an act of civil authority, the loss of utility services and water backup as a result of
Superstorm Sandy, Defendant failed to keep its end of the bargain by covering Plaintiff for those
losses under the policy, instead finding excuses to avoid paying.
5.

Even though Plaintiff submitted a valid and timely claim, Defendant denied that

claim and took the position that the policy provided no coverage for acts of civil authority, water
backup or the loss of utility services under the Policy.
6.

As a result, Plaintiff is entitled to compensation for the business income losses

that it suffered and the business personal property damage that it sustained, which Defendant
should have paid under the Policy.
7.

As set forth in more detail herein, Defendant acted in bad faith in its

determination of the cause of Plaintiffs losses.

THE PARTIES
8.

Plaintiff Montaj, Inc. is a wholesale beauty supply warehouse with a principal

place of business located at 3520 Hargale Court, Oceanside, New York 11572.
9.

Upon information and belief, Defendant ACE American Insurance Company is a

corporation organized and existing under the laws of the State of Pennsylvania with a principal
place of business located at 436 Walnut Street, Philadelphia, Pennsylvania 19106.

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JURISDICTION AND VENUE

10.

This Court has original jurisdiction pursuant to 28 U.S.C. 1332(a) because this

action involves a dispute between citizens of different states, making the parties completely
diverse, and the amount in controversy exceeds $75,000, exclusive of interests and costs.
11.

This Court has personal jurisdiction over Defendant because it maintains a

regular, systematic, and continuous presence in New York, substantial acts as alleged herein
were committed by Defendant in New York, and Defendant issued the relevant insurance policy
to a New York entity with a principal place of business in New York, which policy is the subject
matter of this dispute.
12.

Venue is proper in this district under 28 U.S.C. 1391(b)(2) because the

commercial entity insured by the relevant insurance policy is situated in this district and a
substantial part of the events or omissions giving rise to the claims herein occurred in this
district.
FACTUAL BACKGROUND
A.

The Policy
13.

Defendant issued an insurance policy to Plaintiff identified as Policy Number

MCRD37894229 that was effective from September 1, 2012 to September 1, 2013 (the
Policy). The Policy is a renewal Corporate Risk Domestic Property Policy, a copy of which is
annexed hereto as Exhibit A.
14.

Among a host of other types of coverage, the Policy provided Plaintiff with

business interruption and business personal property coverage intended to cover Plaintiff for the
loss of business income or property damage resulting from occurrences like Superstorm Sandy.
15.

Under the terms of the Policy, Plaintiff paid all of the premiums due totaling

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$22,882.06 (which included the Policys business interruption coverage and business personal
property damage).
16.

Plaintiff satisfied all of its obligations under the Policy and fully performed all

obligations that were due and owing.

17.

Specifically, the Policy provided coverage for Plaintiffs business income loss,

extended business income loss, and extra expense due to a necessary suspension of Plaintiffs
business operations resulting from certain enumerated causes of loss impacting Plaintiffs
business operations at the Premises.
18.

The Policy provided a coverage limit of actual loss for twelve consecutive

months with a maximum coverage limit of $1,000,000 for Business Income, Extended
Business Income and Extra Expense (as set forth by the Policy Declarations).
19.

Under the Business Income and (Extra Expense) Coverage Form of the Policy,

additional coverage is also provided for acts of Civil Authority. The Policy also included an
endorsement that provided coverage for Equipment Breakdown.
20.

Specifically, as to Business Income, the Policy provides that Defendant will

pay for the actual loss of Business Income you sustain due to the necessary suspension of your
operations during the period of restoration. The suspension must be caused by direct
physical loss of or damage to property at premises which are described in the Declarations and
for which a Business Income Limit of Insurance is shown in the Declarations. The loss or
damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or
damage to personal property in the open or personal property in a vehicle, the described premises
include the area within 100 feet of the site at which the described premises are located. (See Ex.
A).

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21.

The Policy defines Business Income to mean (a) Net Income (Net Profit or

Loss before income taxes) that would have been earned or incurred; and (b) Continuing normal
operating expenses incurred, including payroll. (Id.)
22.

Specifically, as to Extra Expense, the Policy includes the following definition:

Extra Expense means necessary expenses you incur during the "period of restoration" that you
would not have incurred if there had been no direct physical loss or damage to property caused
by or resulting from a Covered Cause of Loss. We will pay Extra Expense (other than the
expense to repair or replace property) to: (1) Avoid or minimize the "suspension" of business
and to continue operations at the described premises or at replacement premises or temporary
locations, including relocation expenses and costs to equip and operate the replacement location
or temporary location. (2) Minimize the "suspension" of business if you cannot continue
"operations". We will also pay Extra Expense to repair or replace property, but only to the extent
it reduces the amount of loss that otherwise would have been payable under this Coverage
Form. (Id.)
23.

Specifically, as to Extended Business Income, the Policy provides, [i]f the

necessary suspension of your operations produces a Business Income loss payable under this
policy, we will pay for the actual loss of Business Income you incur (Id.)
24.

Under the Additional Coverages section, the Policy also provides business

income coverage for Plaintiffs losses resulting from Civil Authority and states, [w]hen a
Covered Cause of Loss causes damage to property other than property at the described premises,
we will pay for the actual loss of Business Income you sustain and necessary Extra Expense
caused by action of civil authority that prohibits access to the described premises (Id.)
25.

Although the Policy excluded business income coverage for Utility Services, it

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provides that [b]ut if the failure or surge of power, or the failure of communication, water, or
other utility service results in a Covered Cause of Loss, we will pay for the loss or damage
caused by that Covered Cause of Loss. Communication services include but are not limited to
service relating to Internet access or access to any electronic, cellular or satellite network. (Id.)
26.

Alternatively, under the Equipment Breakdown endorsement the following

covered cause of loss is added to the Policy, Equipment Breakdown, meaning an accident to
covered equipment. (Id.)
27.

The Equipment Breakdown Endorsement continues, Service Interruption: You

may extend your insurance for Business Income, Extra Expense and Spoilage to apply to loss or
damage caused by or resulting from an accident to equipment that is owned by a utility,
landlord, or other supplier with whom you have a contract to provide you with any of the
following services: electrical power, communications, waste disposal, air conditioning,
refrigeration, heating, gas, air, water or steam. (Id.)
28.

The Policy coverage limit under this Endorsement is one day for loss of income

and extra expense coverage and for $1,000,000 for Plaintiffs business personal property.
29.

In addition to Business Income and Extra Expense coverage, the Policy also

provided coverage to Plaintiffs business personal property with a coverage limit of $1,000,000
(as set forth by the Policy Declarations).
30.

Under the Building and Personal Property Coverage Form of the Policy,

Defendant agreed to pay for direct physical loss of or damage to Covered Property at the
premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
(Id.)
31.

The Policy defines Covered Property as follows: Building, meaning the

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building or structure described in the Declarations and [y]our Business Personal Property
located in or on the building described in the Declarations or in the open (or in a vehicle) within
100 feet of the described premises (Id.)
32.

Under the Additional Coverages section, the Policy also provides personal

property coverage for Debris Removal and states, Subject to Paragraphs (3) and (4), we will
pay your expense to remove debris of Covered Property caused by or resulting from a Covered
Cause of Loss that occurs during the policy period. The expenses will be paid only if they are
reported to us in writing within 180 days of the date of direct physical loss or damage. (Id.)
33.

The coverage limit under this additional Debris Removal coverage is $10,000.

34.

Under the Small Business: Special Extensions of Property Coverage form, the

Policy also includes personal property coverage for Backup Sewers and Drains and provides
that, [y]ou may extend the insurance provided by this Coverage Form to apply to loss or
damage of Covered Property caused by or resulting from: a. Water or water-borne material that
backs up or overflows from a sewer, drain, or sump (Id.)
35.

The coverage limit under this Backup Sewers and Drains extension is $25,000

for any one occurrence.

36.

The Policy provides that payments for personal property losses will be calculated

using the following method: 3. Replacement Cost: Replacement Cost (without deduction for
physical deprecation) replaces Actual Cost Value in the Valuation Loss Condition of this
Coverage Form. (Id.)
B.

Interruption of Plaintiffs Business Operations

37.

When Plaintiff purchased and obtained the coverage under the Policy, Plaintiff

bargained for and understood the Policy to protect it against a loss of business income and

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damage to its business personal property in the event that its business operations were impacted,
interrupted or damaged by a peril insured against under the Policy.
38.

Superstorm Sandy touched down late in the evening on October 28, 2012 and

extended into the early morning hours on October 29, 2012, causing severe and catastrophic
damages throughout New York and New Jersey, including at Plaintiffs Premises.
39.

On or about October 28, 2012, members of the public were ordered to evacuate

certain areas in Nassau County that were located in a flood or storm surge zone, which included
the site of Plaintiffs Premises, by no later than 2:00 p.m. on Sunday, October 28, 2012, pursuant
to the Evacuation Order issued by Nassau County Executive, Edward P. Mangano. Upon
information and belief, the Evacuation Order was in effect for approximately seventeen days,
preventing access to Plaintiffs Premises, until approximately November 14, 2012 (the
Evacuation Order).
40.

An executive order to evacuate issued by the government is an action of civil

authority that prohibits access to the Premises.

41.

Plaintiff could not operate its business for an extended period of time, initially by

an inability to access the Premises due to an act of civil authority and then, due to the loss of
utility services and physical damage to the Premises.
42.

As of October 29, 2012, Plaintiff lost power to the Premises due to the sudden and

unexpected damage to its electric utility suppliers equipment caused by Superstorm Sandy.
Power was not restored to the Premises until November 12, 2012 and power was not turned on at
the Premises until November 18, 2012, upon the inspection of the local fire department.
43.

Long Island Power Authority (LIPA), the utility service provider that owned the

electrical equipment and was contractually obligated to supply electricity to Plaintiff, attested

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that the cause of the utility failure was wind and flood damage to the substation. Subsequently,
windstorms caused a utility pole (within 100 feet of the Premises) to snap and fall to the ground.
This damage was not repaired until November 12, 2012.
44.

The local fire department went door-to-door performing inspections of properties

in the area to ensure their fitness to sustain power supply. Only upon the fire departments
approval could a tenant return power to its property. The fire department allowed Plaintiff to
turn on the power to its Premises as of November 18, 2012.
45.

Accordingly, Plaintiff was without power for twenty-one days and sustained a

loss of business income during that period in which it was forced to suspend its business
operations completely and could not serve its customers in any capacity (the Power Outage).
46.

As a result of the Evacuation Order and Power Outage, Plaintiff sustained a loss

of at least $416,849 in business income (the Lost Business Income).

C.

Damage to Plaintiffs Business Property

47.

In addition to the Evacuation Order and Power Outage that interrupted Plaintiffs

business operations, Plaintiffs Premises and property also sustained extensive water damage that
was directly caused by water that backed up and overflowed from a drain in Plaintiffs Premises.
48.

Plaintiffs business personal property sustained irreparable damage when the

drain catch on the ground flood of its warehouse backed up and overflowed, causing water to
inundate the Premises and destroy most, if not all, of Plaintiffs property, including equipment,
inventory, and merchandise (the Water Backup).
49.

The direct and proximate cause of Plaintiffs business property damage was the

failure of the drain at the Premises to properly drain water, which is its primary and only
function, causing the drain water to overflow and resulting in substantial damage to Plaintiffs

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business personal property.

50.

Plaintiff lost the majority of its equipment, inventory, and merchandise as a result

of the water backup at the described premises. Plaintiff estimates that its loss of business
property totals approximately $450,000 (the Business Property Damage).
D.

Defendant Wrongfully Denied Plaintiffs Claim Under The Policy

51.

On October 29, 2012, Plaintiffs President, Mr. Todd Morse, submitted a timely

claim to Defendant under the Policy for Plaintiffs Lost Business Income and Business Property
Damage.
52.

Defendant denied Plaintiffs claim based on its erroneous determination that

Plaintiffs Lost Business Income and Business Property Damage were excluded under the Policy
because the damage was caused by flooding or was otherwise excluded under the Policy.
53.

On November 15, 2012, Defendant improperly took the position that Plaintiff did

not have coverage for its Lost Business Income or Business Property Damage under the Policy
(the Denial Letter) alleging that the business interruption losses and property damage that
Plaintiff sustained due to civil authority, utility service failure, and water backup from
Superstorm Sandy were not covered under the Policy.
54.

On January 28, 2014, Defendant confirmed its denial of Plaintiffs claim based

upon the visual inspection of Engle Martin & Associates, Inc. and PT&C Forensic Consulting
Services, P.A., independent adjusters contracted by Defendant to investigate Plaintiffs claim.
55.

The adjusters contracted by Defendant determined that Plaintiffs loss of power

and property damage was caused by flooding and/or surface water, which Defendant alleged is
excluded under the Policy. Based on this information, Defendant further denied Plaintiffs
claim.

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56.

Despite the clear and widespread destruction Superstorm Sandy caused and

despite the business interruption and property protections that Plaintiff purchased from
Defendant, with the understanding its business would be covered if interrupted and/or damaged
due to civil authority, utility service failure, and water backup resulting from a storm such as
Superstorm Sandy, Defendant wrongfully denied Plaintiffs claim in bad faith. Defendants
excuses to avoid satisfying its obligations under the Policy are all the more egregious and in bad
faith specifically because of the widespread and well-known destruction that Superstorm Sandy
caused to the area in which the Premises are located.
57.

As a direct and proximate result of Defendants wrongful and bad faith denial of

Plaintiffs claim under the Policy, Plaintiff has suffered damages, measured by its business
income losses, business personal property damage, and the amount of its claim that Defendant
denied.
AS AND FOR A FIRST CAUSE OF ACTION
(Breach of Contract)
58.

Plaintiff repeats and realleges each and every one of the foregoing allegations as

though fully set forth herein.

59.

Plaintiff and Defendant are parties to the Policy, which is a valid and binding

contract supported by mutual consideration.

60.

Plaintiff fully performed its obligations under the Policy because it paid all

premiums due and owing and timely filed a claim following Superstorm Sandy. Plaintiff fully
cooperated with Defendant during the claim handling process.
61.

Defendant breached the Policy because it denied Plaintiffs claim for business

income losses and property damage, which are covered by the Policy and were within the Policy
limits.

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62.

Defendant also breached its contractual obligation to investigate Plaintiffs claim

properly and in good faith. Defendants breach in this regard denied Plaintiff the benefit of the
bargain provided by the Policy.
63.

As a direct and proximate result of Defendants conduct as alleged herein,

Plaintiff has suffered compensatory damages in an amount to be proved at trial but in no event
less than $866,849.
JURY TRIAL DEMAND
64.

Plaintiff demands a trial by jury on all issues and claims subject to the right of a

jury trial.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff requests the entry of judgment in its favor and against
Defendant as follows: (i) compensatory damages in an amount to be proven at trial but in no
event less than $866,849; (ii) pre-judgment interest, costs, expenses, and attorneys fees incurred
by Plaintiff; and (iii) such other and further relief as the Court deems just and proper.

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Dated:

New York, New York

October 28, 2014
Respectfully submitted,

NAPOLI BERN RIPKA SHKOLNIK LLP

By:

/s/ Brian H. Brick

Brian H. Brick, Esq.

350 Fifth Avenue, Suite 7413

New York, New York 10118
(212) 267-3700 (Phone)
(212) 587-0031 (Fax)
Attorneys for Plaintiff

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