               SUPREME COURT OF THE STATE OF NEW YORK
                  Appellate Division, Fourth Judicial Department

320
CA 11-02133
PRESENT: SCUDDER, P.J., SMITH, CARNI, AND SCONIERS, JJ.


DEBORAH VOSS, PROP-CO, LLC, CLASSI PEOPLE, INC.,
DOING BUSINESS AS SERTINO’S CAFÉ AND DREAM
PEOPLE, INC., DOING BUSINESS AS SHIVER MODEL,
PLAINTIFFS-APPELLANTS,

                    V                                     MEMORANDUM AND ORDER

THE NETHERLANDS INSURANCE COMPANY, ET AL.,
DEFENDANTS,
AND CH INSURANCE BROKERAGE SERVICES, CO., INC.,
DEFENDANT-RESPONDENT.


DIRK J. OUDEMOOL, SYRACUSE, FOR PLAINTIFFS-APPELLANTS.

WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP, ALBANY (ELIZABETH
GROGAN OF COUNSEL), FOR DEFENDANT-RESPONDENT.


     Appeal from an order of the Supreme Court, Onondaga County
(Deborah H. Karalunas, J.), entered January 11, 2011. The order
granted the motion of defendant CH Insurance Brokerage Services, Co.,
Inc. for summary judgment dismissing the amended complaint against it.

     It is hereby ORDERED that the order so appealed from is affirmed
without costs.

     Memorandum: Plaintiffs commenced this action alleging, inter
alia, negligence and breach of contract in connection with business
interruption coverage that CH Insurance Brokerage Services, Co., Inc.
(defendant) obtained for plaintiffs from former defendant, Peerless
Insurance Company, for which defendant The Netherlands Insurance
Company was substituted by stipulation of the parties after the action
was commenced. We conclude that Supreme Court properly granted
defendant’s motion for summary judgment dismissing the amended
complaint against it, but our reasoning differs from that of the
court. Contrary to the court’s determination, we agree with
plaintiffs that defendant failed to establish its entitlement to
judgment dismissing the amended complaint on the ground that no
special relationship existed between defendant and plaintiffs (see
generally Murphy v Kuhn, 90 NY2d 266, 271). In support of its motion,
defendant submitted the deposition testimony of Deborah Voss
(plaintiff), the sole shareholder and principal of the corporate
plaintiffs, stating that defendant’s representative reviewed, inter
alia, the types of businesses to be insured as well as sales figures,
and that he thereafter presented her with a proposal for insurance
coverage, which included $75,000 per incident for business
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                                                         CA 11-02133

interruption insurance. When plaintiff questioned whether the amount
was sufficient, defendant’s representative assured her that it was and
that defendant would review the coverage annually and recommend
adjustments as the businesses grew. Thus, we conclude that
defendant’s own submission supports the contention that plaintiff
relied upon defendant’s expertise and assurance regarding the
appropriate level of insurance to protect the corporate plaintiffs in
the event of a loss (cf. Hoffend & Sons, Inc. v Rose & Kiernan, Inc.,
7 NY3d 152, 157-158).

     As noted, however, we nevertheless conclude that the court
properly granted defendant’s motion. The commercial building that
housed the corporate plaintiffs, as well as a corporate tenant, was
damaged on three separate occasions in connection with water leaking
from the roof, which caused a portion of the roof to collapse on two
of those occasions. The first two incidents occurred while the limit
for business interruption coverage was $75,000, and the third incident
occurred after the policy was renewed and the coverage for business
interruption had been reduced to $30,000. Plaintiffs alleged in their
amended complaint and supplemental bill of particulars that defendant
failed to provide adequate coverage and was negligent in reducing the
coverage. However, the renewed policy was in effect for approximately
nine months at the time of the third loss, and “[p]laintiff[s are]
charged with conclusive presumptive knowledge of the terms and limits
of [the policy]” (Hoffend & Sons, Inc., 19 AD3d 1056, 1057, affd on
other grounds 7 NY3d 152 [internal quotation marks omitted]). Thus,
the cause of action against defendant for negligence and breach of
contract with respect to the reduced policy limit is defeated as a
matter of law (see id. at 1057-1058). Indeed, plaintiff admitted that
she knew that the policy limit had been reduced from $75,000 to
$30,000 and that, although she had contacted defendant to question the
reduction, she did not hear back from defendant’s representative and
did not again contact defendant’s representatives.

     We note that plaintiff testified at her deposition that
plaintiffs received only $3,197 on the claim for business interruption
for the first incident and $30,000 for the second incident, and that
no funds were paid on the claim for business interruption for the
third incident. Plaintiff testified that, if the policy limit of
$75,000 had been paid in a timely manner for each of the first two
incidents, the plaintiff corporations would have remained operational.
We therefore conclude that, even in the event that defendant
negligently failed to obtain sufficient business interruption coverage
for plaintiffs, any such negligence is not a proximate cause of
plaintiffs’ damages as a matter of law (see generally Derdiarian v
Felix Contr. Corp., 51 NY2d 308, 315, rearg denied 52 NY2d 784, 829).

     All concur except CARNI, J., who dissents and votes to reverse in
accordance with the following Memorandum: I respectfully dissent and
would deny the motion of CH Insurance Brokerage Services, Co., Inc.
(defendant) for summary judgment dismissing the amended complaint
against it. At the outset, I note that I concur with my colleagues
that “defendant’s own submission supports the contention that [Deborah
Voss (plaintiff)] relied upon defendant’s expertise and assurance
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                                                         CA 11-02133

regarding the appropriate level of insurance to protect the corporate
plaintiffs in the event of a loss.” Thus, I further concur with my
colleagues that defendant failed to establish its entitlement to
judgment dismissing the amended complaint on the ground that no
special relationship existed between defendant and plaintiffs (see
generally Murphy v Kuhn, 90 NY2d 266, 271). However, it is at this
juncture that the majority and I part ways.

     Given my agreement with the majority that plaintiffs’ assertion
of a “special relationship” with defendant remains viable, it thus
follows that plaintiffs may be found to have relied upon defendant’s
expertise and assurance regarding the appropriate level of insurance
to protect the corporate plaintiffs in the event of a loss. It is
therefore incongruous to conclude, simultaneously, as does the
majority, that the cause of action against defendant for negligence
and breach of contract is defeated as a matter of law because the
renewed policy was in effect for approximately nine months at the time
of the third loss, and “[p]laintiff[s are] charged with conclusive
presumptive knowledge of the terms and limits of [the policy]”
(Hoffend & Sons, Inc. v Rose & Kiernan, Inc., 19 AD3d 1056, 1057, affd
on other grounds 7 NY3d 152 [internal quotation marks omitted]).
Rather, if plaintiffs in fact relied upon defendant’s expertise and
assurance regarding the appropriate level of insurance coverage, “it
is no answer for the broker to argue, as an insurer might, that the
insured has an obligation to read the policy” (Baseball Off. of Commr.
v Marsh & McLennan, 295 AD2d 73, 82; see Hersch v DeWitt Stern Group,
Inc., 43 AD3d 644, 645). Indeed, the doctrine that an insured is
presumed to know the terms and limits of the policy has its genesis in
actions against insurers - not agents with whom a special relationship
with the insured has been alleged or established (see Metzger v Aetna
Ins. Co., 227 NY 411, 414-417).

     I also respectfully disagree with the majority’s conclusion
concerning the dispositive effect of the testimony of plaintiff that,
if the $75,000 policy limits had been paid in a timely manner after
the first two incidents, the plaintiff corporations would have
remained operational. The policy at issue provided “BUSINESS INCOME
(AND EXTRA EXPENSE) COVERAGE.” Under the policy, the insured’s
“Business Income loss” is determined by the net income of the business
before the direct physical loss or damage occurred. The policy covers
business income loss sustained due to the necessary suspension of
“operations” during the “period of restoration” caused by the physical
loss to the business property.

     However, the policy clearly contemplates the possibility that the
insured might not resume “operations” after the loss. Specifically,
the policy provides, “If you do not resume ‘operations,’ or do not
resume ‘operations’ as quickly as possible, we will pay based on the
length of time it would have taken to resume ‘operations’ as quickly
as possible.” Thus, neither the policy nor the benefits paid
thereunder guarantee or insure that the insured business will once
again become operational, profitable or sustainable. Instead, the
policy insures against losing net business income and incurring extra
expenses during the period when “operations” are suspended or during a
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                                                         CA 11-02133

reasonable time in which to “resume operations” (see generally Buffalo
El. Co. v Prussian Natl. Ins. Co., 64 App Div 182, 185-187, affd 171
NY 25). If and when the business resumes operations, the insurer’s
obligation to pay net income benefits terminates (see Royal Indem. Co.
v Retail Brand Alliance, Inc., 33 AD3d 392, 393, lv denied 8 NY3d 813,
11 NY3d 705). However, if the business does not resume operations,
the insured is entitled to business interruption coverage for the
period of time it would have reasonably taken to resume operations
(see Children’s Place Retail Stores, Inc. v Federal Ins. Co., 37 AD3d
243), and the duration of that time period ordinarily constitutes an
issue of fact (see Maple Leaf Motor Lodge v Allstate Ins. Co., 53 AD2d
1045, 1046). Thus, an insured may receive payment of policy benefits
for business interruption coverage and never resume operations without
violating the terms and conditions of the policy (see DiLeo v United
States Fid. & Guar. Co., 109 Ill App 2d 28, 42-43, 248 NE2d 669, 676;
see also National Union Fire Ins. Co. v Scandia of Hialeah, Inc., 414
So 2d 533, 535). There is no requirement in the policy that the
insured must resume operations in order to recover business
interruption losses (see B A Props., Inc. v Aetna Cas. & Sur. Co., 273
F Supp 2d 673, 685). Indeed, the claims analyst for the insurer
testified at his deposition that business income loss payments made to
an insured could be spent “on anything.”

     Plaintiffs’ action against defendant arises from the failure to
procure business interruption coverage limits in an amount consistent
with the nature of the business, and its revenue, expense and net
income performance history. Whether defendant was negligent in
failing to do so is measured not by whether plaintiffs would have
resumed operations if timely paid the full but allegedly insufficient
limits after each of the first two incidents. Instead, it is measured
by the amount of plaintiffs’ business income losses when compared to
the policy limits determined and procured by defendant. Thus, I
conclude that whether plaintiffs actually resumed operations is
irrelevant to the proximate cause analysis. As the movant seeking
summary judgment dismissing the amended complaint, defendant had to
establish that the policy limits were sufficient to cover the amount
of plaintiffs’ business income losses during the relevant policy
periods (see generally Zuckerman v City of New York, 49 NY2d 557,
562). Defendant did not meet that burden and thus is not entitled to
summary judgment.

     Moreover, in my view the record is confusing and inconclusive
with respect to the amount of plaintiffs’ business interruption losses
for each incident. However, the record does reflect that, with
respect to the second incident, plaintiffs’ claimed business income
loss was the sum of $449,724. Obviously, the disparity between that
loss and the $75,000 policy limit would provide the necessary
proximate cause for an award of damages with respect to the second
incident in the event that plaintiffs were successful in convincing
the trier of fact that the aforementioned “special relationship”
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                                                     CA 11-02133

existed and that defendant was negligent.




Entered:   June 15, 2012                    Frances E. Cafarell
                                            Clerk of the Court
