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DUANE READE INC. v. ST. PAUL FIRE & MARINE INS. CO.

August 20, 2003

DUANE READE, INC., PLAINTIFF -V- ST. PAUL FIRE & MARINE INSURANCE COMPANY, DEFENDANT


The opinion of the court was delivered by: Jed Rakoff, District Judge

MEMORANDUM ORDER

Confirming the Court's telephonic rulings of June 13, 2003 and letter to counsel dated July 8, 2003, defendant's motion for summary judgment is denied in its entirety and plaintiff's motion for summary judgment is granted in part and denied in part, as set forth below. Additionally, defendant's motion to submit the "number of years" calculation to an appraiser is granted.

By way of background, this case concerns insurance coverage for a drugstore (the "WTC store") that plaintiff Duane Reade, Inc. ("Duane Reade") operated in the retail concourse of the World Trade Center prior to September 11, 2001. After the World Trade Center was destroyed, Duane Reade sought to recover under an insurance policy (the "Policy") issued by defendant St. Paul Fire & Marine Insurance Company ("St. Paul"). When the parties were unable to resolve a dispute concerning the scope of the Policy's coverage for "business interruption losses," Duane Reade [ Page 2]

brought this action, seeking both declaratory relief as to the scope of coverage and damages for breach of contract. St. Paul responded by moving to dismiss all the claims, but while the Court dismissed the contract claims as premature (because no proof of loss had been filed), it allowed the declaratory judgment claims to proceed. See Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., No. 02 Civ. 7676, 2003 WL 1990680 (S.D.N.Y. Apr. 30, 2003).*fn1

Following discovery, the parties each moved for summary judgment. Their submissions show that St. Paul does not dispute that the destruction of the WTC store was caused by a covered peril. Indeed, St. Paul has already satisfied Duane Reade's property loss claims. Moreover, although St. Paul now disputes that any monies are due for business interruption losses, previously, in May of 2002, St. Paul paid Duane Reade $9,863,853 to cover what it then perceived to be Duane Reade's business [ Page 3]

interruption losses.*fn2

Nonetheless, genuine disputes remain over the scope of the business interruption coverage, some of them resolvable as a matter of law. The Policy as a whole covers losses at all Duane Reade stores for the period between October 1, 2000 and October 1, 2001 and has a coverage limit of $150 million. The provision dealing with business interruption losses extends coverage to:

[t]he interest of the Assured in loss of earning (Business Interruption), including ordinary payroll, continuing expenses, loss of royalties and bonus programs as a result of an interruption of of the Assured's business (either partial or total) if such interruption is a result of peril, not excluded under this policy, causing direct physical loss or damage to any Real or Personal Property whether insured or not . . . including but not limited to loss or damage to . . . property of the Assured, . . . and property of customers, property of customers of customers.
Declaration of Erik M. Figlio, dated April 11, 2003 ("Figlio Decl."), Ex. A (Policy), at 4. Such coverage, however, does not extend into the indefinite future but is limited by "Restoration Period" clauses, which provide in relevant part as follows:
PERIOD OF RESTORATION AND/OR INDEMNITY The measure of recovery or period of indemnity shall not exceed such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace such property that has been destroyed or damaged, and shall commence with the date of such destruction or damage and shall not be limited [ Page 4]
by the date of expiration of this policy.
Resumption of Operations: As soon as practicable after any loss, the Assured shall resume complete or partial business operations and reduce or dispense with such additional charges and expense as are being incurred.
Extended Recovery Period
This policy is extended to cover the Actual Loss Sustained by the Assured resulting from interruption of business for such additional length of time as would be required with the exercise of due diligence and dispatch to restore the Assured's business to the condition that would have existed had no loss occurred, commencing with the latter [sic] of the following dates:
a) the date on which liability of the Company of loss resulting from interruption of business would terminate if the clause had not been attached to this policy or
b) the date on which repair, replacement, or rebuilding of such part of the property as has been damaged is actually replaced, but in no event for more than twelve months from said later commencement date.
Id. at 17-21. Also, the Policy specifically excludes coverage for "loss or damage caused by . . . loss of market [.]" Id. at 9.

The principal coverage issue presented by the instant motions concerns how these clauses should be interpreted in determining the length of the Restoration Period applicable to the WTC store.*fn3 Specifically, Duane Reade argues that the Policy [ Page 5]

should be read to provide that

the Restoration Period consists of the actual time period that would, or will, be required to restore Duane Reade's operations to the kind, quality, and level which existed at the WTC Store prior to the terrorist attacks and that such Restoration Period is coterminous with the time necessary to rebuild the complex which will replace the World Trade Center.
Complaint at ΒΆ 39. St. Paul, by contrast, argues that the Restoration Period terminated when, at a time already past, Duane Reade could have "restored operations" at locations other than the ...

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