Most buildings in flood zone areas already maintained flood insurance as a result of lender requirements and therefore were covered by Sandy. The biggest surprise was those persons who use their homes as home offices or the building rents out office space and maintained business interruption insurance only to find out that business insurance only kicks in only when involving a covered peril such as a direct hit from a flood. For example, a unit owner is without utilities for several weeks and cannot work. Because the unit owner’s office is high in the sky it never occurred to him or her to obtain any insurance beyond the basics. During and after Sandy, most insurance companies denied any coverage as a result of the loss of utilities as business interruption insurance requires that a direct hit or covered event before business interruption applies. So those that lost their utilities because the utility companies’ lines were cut before the storm were out of luck.
Learning from the hundreds of buildings we counseled, it turns out that insurers have many extremely inexpensive or free riders to the policy to cover the next calamity. One such example is anti-concurrent-causation coverage. If wind and water hit the building at the same time and only wind is covered by the policy, anti-concurrent-causation coverage will allow coverage even if the water could have caused the damage as well as the wind.
Although none of these cases directly involve cooperatives or condominiums, there are, in total, five reported real estate decisions that have come down in the aftermath of Superstorm Sandy, two of them landlord-tenant, one of them regarding negligence liability for a fallen crane, one for utility liability for failed power, and one for construction of an insurance policy. Additionally there are some seven complaints on file, six of them construing insurance policies and one suing a landlord for alleged negligence. These suits, both completed and pending, can provide useful instruction for the kinds of actions a building owner must take to prepare for the next natural or civil disaster to afflict New York City. It’s useful for landlords and building owners to consider these issues because of the nature of storm damage.
Claiming Constructive Eviction in a Condo or Co-op
In Maiden Lane Properties v. Just Salad Partners, the tenant sought to have the rent abated by reason of “constructive eviction,” a situation in which the landlord’s upkeep of the premises is so badly performed that the tenant is compelled to abandon all or part of the premises. Key to the concept of constructive eviction, however, is fault on the part of the landlord. Mere happenstance is not fault. In Barash v. Pennsylvania Terminal Real Estate Corp., the Court of Appeals set the standard for constructive eviction, writing, “On the other hand, constructive eviction exists where, although there has been no physical expulsion or exclusion of the tenant, the landlord's wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises.”