On Wednesday 18 July 2007 around 6pm a steam pipe exploded shooting steam, water and debris into the air near New York's Grand Central Terminal in the Midtown section of Manhattan. It left a gaping hole in the street and traffic was halted between 40th and 43rd streets. Carcinogen asbestos was found in dust and debris.
One person died of a heart attack, at least 44 were injured and 3 firefighters and 1 police officer were treated for minor injuries.
That this could have been an act of terrorism was ruled out immediately and clearly announced in the media. The Mayor, Michael R. Bloomberg, in a televised briefing from the site said "A steam pipe, 24 inches in diameter, installed in 1924, burst."
Businesses around the site have reportedly lost nearly US$1.3 million, according to a survey conducted by Democratic congresswoman Rep. Carolyn Maloney’s office of 71 businesses operating near the site. Not surprisingly most of the losses resulted from the period of closure. Around half of the businesses were closed for more than a day and the survey reported that the average loss per business was US$18,000.
In other reports business losses are estimated at millions and lawsuits seeking millions more are piling up. One example reported was a cosmetic dentist who filed a US$25 million lawsuit against the utility that operates the steam pipe, Consolidated Edison, claiming he has lost money and patients because of the blast.
Australian Insurance policy response
Is there damage in the first instance?
If this event occurred in Australia, a claim for Loss of Gross Profit under a standard Industrial Special Risks (ISR) policy would require there to be damage to insured property (the Material Damage proviso).
If there is damage, say to shop windows smashed and stock destroyed, Section 2, Loss of Gross Profit would follow. The questions which must then be asked are:
- What period of time has the business been affected by the damage i.e. the damage to the window? This is the Indemnity Period.
- What is the financial impact to the business?
This will then be subject to any limits of cover or application of the under insurance clause.
If there is no damage to the business’ property then what extensions of cover does the policy contain?
Prevention of Access
The standard Mark IV ISR wording, which is often used in Australia, has an extension of cover for "Premises in the Vicinity (Prevention of Access)". This effectively provides cover where the business is interrupted as a result of damage to property in the vicinity of the business premises. The damage, however, must be caused by an insured peril under the policy and prevent access to the premises.
A common property exclusion under the ISR wording is "any boiler (other than a boiler used for domestic purposes) economiser or other pressure vessel, including pipes, valves and other apparatus thereof in respect of which a certificate is required to be issued under the terms of any statute or regulation, occasioned by or arising from explosion, rupture, collapse, bursting, cracking or overheating thereof, provided that this exclusion shall be limited to the aforementioned items immediately affected and shall not extend to other property as a result of such loss or destruction or damage. This exclusion shall not apply to section 2 as specifically stated therein." [Bold added]
So would a claim be limited in this example?
Public Utilities
If, as a result of the aforementioned explosion, there is loss of water to the business would this be covered by the extension of cover for damage to Public Utilities?
In this case study two issues arise in relation to the Public Utilities extension. Firstly, it must be caused by an insured peril, as with the Prevention of Access extension. Secondly the standard Australian policy wording requires the electricity station, sub-station, gas works or water works to be situated "on or immediately adjacent to the Premises".
American Insurance Policy Response
US policies define the indemnity period different than Australian policies. They also differ in their standard exclusions, extensions and available endorsements. As a result it is important to read each individual policy carefully.
Law Suits
For those without insurance, or extensions of cover applying to this loss then the legal route may be the only remaining avenue of recovery.
The law suits referred to in the American press suggest the basis is negligence on the part of Consolidated Edison. They are estimated to be for millions of dollars.
Should these claims be quantified any differently than the response under the Loss of Gross Profit cover where it is fully insured under an appropriate insurance cover?
Questions such as
- How long was the general area closed?
- How long was the business closed? and
- How has it impacted the business beyond the initial shutdown?
will still be asked.
Remember it was clearly stipulated immediately following the explosion that it was not an act of terrorism. So it is unlikely that people would continue to avoid the area once repairs are completed. Further, people tend to favour those who have been impacted by tragedy once trading resumes. So how does an average business loss of US$18,000 translate into millions of dollars?
Author
Claim Solutions Pty Ltd.
Insurance Policy
Country: - United States of America
Policy Description: - Commercial, Motor Vehicle, Personal Injury
Insurer: - Various
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