Insurance Checks Aren’t In The Mail: Lawsuits Loom Over Coverage Limits

David Sutton is tired of waiting for his insurance check to arrive. It’s been eight weeks since he hired an insurance adjuster to handle the claim for his lingerie store, New York Stocking Exchange, located across the street from the World Trade Center.
Most of the merchandise in the New York Stocking Exchange is ruined, and representatives from Mr. Sutton’s insurance company, Zurich American Insurance Co., have been to the store several times to assess the damage. The paperwork has been complete for a moth. But Mr. Sutton has not been told yet how much money he can expect to receive or when he will get it.
“It’s taking too long,” says Mr. Sutton.
Mr. Sutton’s complaint resonates with thousands of other small business owners in New York who are still waiting for their insurance checks or who are haggling with their provider about what their policy covers.
In the days and weeks after the World Trade Center collapsed, insurance companies were widely praised for how quickly they set up hot lines and set out representatives to lower Manhattan to explain how and where to file a claim. Now that many businesses have filed claims – some 11,000 commercial business claims worth $8 billion have been reported to the New York State Department of Insurance – speed has taken a backseat to frustration.
The problem is that insurance checks are taking much longer to arrive than most small businesses can afford to be without them. Mr. Sutton, for one, is looking for an advance on his claim so that he can pay his creditors.. Some insurance companies are giving out partial payments – equal to about 10 cents on the dollar of the total claim – but so far, Mr. Sutton has not received even that.
While it is still early for litigation, a number of lawyers are eying cases that could lead to lawsuits against insurance companies.
“The kind of cases I would take on are disputes over defining physical damage and how long it takes to clean it up,” says Craig Blumberg of Manhattan based law firm Matarazzo Blumberg & Associates.
Most experts say large firms have better record-keeping to support their claims and financially are better able to weather the delays and fight with insurers. While small firms are likely to collect for physical damages relatively easily, they are being ensnared in complicated disputes over coverage for business interruption claims.
Business interruption insurance, triggered by a “civil authority” order by the government, covers a business for the days that the business is closed, although usually for only two weeks or a month. But it doesn’t cover a company because customers were unable to get to the business when streets were closed or the business was unable to operate due to a lack of phone or delivery services.
FEELING PENALIZED
In addition, there are questions about how long it should take to clean up dust and debris and whether that is considered damage. One question being raised is whether current insurance policies are appropriate in a post-Sept.11 world.
Many small businesses say they feel penalized by their insurance companies, because they reopened before it was possible for their customers to reach them. Vine restaurant on 25 Broad St. was closed the week of the terrorist attack. The following week, Julie Menin, founder and president of Vine, asked her managers to help clean the restaurant, which was covered in dust.
Even though there was no vehicular traffic allowed on her street – preventing food deliveries – and pedestrian traffic was limited, her insurance company say Vine’s business interruption insurance ended on September 18, the day Ms. Menin and her employees began cleaning.”The insurance company says because we opened our doors and turned on our lights, we were able to open for business,” says Ms. Menin. Vine’s insurance company, The St. Paul, send a check for $25,000 while it evaluates Ms. Menin’s claim of more than $500,000. “Our business is off by 40%,” says Ms. Menin. “We are still ‘interrupted.’”
Businesses that rely on foot traffic may be especially hard-hit by insurance limitations, but non-retail businesses are affected as well. Law firm Wilkofsky Friedman Karel & Cummins on Broad Street had no telephone or fax service for at least six weeks. Clients were unable to reach their offices, depositions and cases were delayed and the courts were closed.
But since its office opened on Sept. 18, the firm expects any claim for business interruption losses after that date to be rejected.
“Whether you are a retailer or a service company, the legal issues are similar,” says Jonathan Wilkofsky, a partner in the firm and general counsel of the New York Public Adjusters Association. “You will experience the same frustrations in presenting your claim and trying to articulate your loss to the insurance company.”
Similarly, landlords are mired in questions of what triggers business interruption insurance. Ezra Safdie, who owns a small residential and commercial building on Broadway and John Street, is arguing with his insurance provider over whether he is entitled to coverage for lost rents because three of his five residential tenants moved out of the building permanently. He agrees with their decision to leave. The tenants left because they were concerned bout their safety, given the smell and air quality.
“The insurance company knows all of that, but they say the tenants had no right to leave the building permanently and therefore they are not responsible for the rent insurance portion of my policy,” says Mr. Safdie.
Some merchants are so frustrated that they are mulling lawsuits.
A number of restaurants located just north of the disaster area say their businesses were hurt when pedestrian traffic was limited because of street, subway and airport closures. They submitted business interruption claims and were denied by their insurance providers.
“Many insurance companies decided that because a street was open, the merchant doesn’t have a valid complaint,” says Richard Quadrino of law firm Quadrino & Schwartz in Garden City, L.I., who is considering representing the restaurants.
CURRENT POLICIES INADEQUATE?
One question being raised is whether current insurance policies are appropriate in a post-Sept. 11 world. “The typical insurance policies that we have for decades are simply insufficient to cover a lot of the loss that these insured (business) are experiencing,” says Gregory Serio, superintendent of the New York State Department of Insurance.
Nevertheless, Mr. Serio maintains that insurance companies are doing a good job under difficult circumstances. He points to the dearth of complaints his office has fielded since Sept. 11 – only 10 related to the disaster. That is a remarkable figure, considering that the department investigated some 60,000 complaints three years ago and expects to investigate about 80,000 this year.
But Mr. Serio is also concerned that his department is not aware of a lot of the problems. “We’ve been hearing a lot of positive things (about insurance companies),” says Mr. Serio,”I can’t help claims be settled if the businesses don’t tell us that they need help.”

Evan-Schwartz

Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
800-745-1755
ESS@schwartzlawpc.com