Trump SoHo New York Hotel lost electricity at 8:20 p.m. on Oct. 29, 2012, as Superstorm Sandy struck the city. The power outage, which lasted four and a half days, cost the luxury property more than $2 million in lost business and extra expenses.

On Thursday, the hotel's owner sued its insurance provider for rejecting its claim for damages. Con Edison was also named in the suit that was filed in New York City Supreme Court. The lawsuit may be the first legal challenge to the utility's position that a flood at its East 14th Street substation caused lower Manhattan's nearly weeklong blackout. This explanation has been widely cited by insurers as a reason for denying Sandy-related claims.

The hotel is seeking at least $2.3 million in damages, alleging gross negligence by Con Edison and breach of contract by its insurer, Affiliated FM.

The 391-room property, owned by Bayrock/Sapir Organization L.L.C. — in which the Trump family is a partner — submitted a business interruption claim to its insurer. In January, its claim was rejected, according to the lawsuit, because the hotel's policy did not cover it for off-premise service interruption caused by flooding at the Con Edison substation.

"We didn't expect to get denied for 100% of our claim," said BSO's general counsel Julius Schwarz. "We had flood insurance."

While hundreds of Sandy-related lawsuits have been filed in New York and other states, this one has the potential to affect many other claims in the city that were denied.

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The complaint maintains that an explosion at Con Edison's facility was the cause of the power outage — not excessive water. Numerous news outlets showed video footage of the explosion, and a darkened lower Manhattan moments later.

"We believe we can prove that it was an explosion," said James McGuire, managing partner of the law firm of Mishcon de Reya, which was retained by BSO. The complaint notes that the hotel's insurance policy contains no exclusions for explosions at an off premise service provider resulting in power outages.

A Harvard Law School grad and a former assistant U.S. attorney for the Southern District of New York, Mr. McGuire said the case could open the door for other businesses whose claims have been denied based on the flood explanation to seek legal remedies against the utility and insurance companies.

The utility produced a 45-page explanation in November detailing the causes of the power outages in the city. The document was produced at the behest of insurance companies, which have in turn attached Con Edison's explanation to their denial letters.

During the power outage, the Trump SoHo at 246 Spring St., lost room revenue of approximately $1.2 million as well as $185,000 in lost business in its spa, bars and banquet space, according to the complaint. Other expenses, included $3,600 the hotel spent on emergency provisions like flashlights and bottled water in anticipation of the storm, $5,500 for a generator and $10,780 in lost revenue due to refunds — the hotel "attempted" to charge standard room rates of $718 to guests who stayed on after Oct. 29, but 16 customers challenged the charges and got full refunds.

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As a result of these expenses, BSO took out a $350,000 loan to cover its payroll of some 400 employees, said Mr. Schwarz.

"We had these expenses and no revenue coming in to offset it," said Mr. Schwarz. "The actual financial impact on the hotel was greater than our claim, because frankly a lot of people canceled their reservations before and after the hurricane."

The complaint maintains that Con Edison was negligent because it did not shut off the power at that East 14th Street facility pre-emptively as it had at other substations in the city and that its facility should have been constructed better to withstand significant storms.

“The outages to much of lower Manhattan during Sandy was due to unprecedented flooding in our facilities and other areas," said a Con Edison spokesman. "This is a matter between building owners and their insurers. We will review the allegations in this lawsuit when we are served with the summons and complaint.”

Affiliated FM, the complaint says, had an obligation to "investigate" the cause of the explosion at Con Edison's facility and to honor the hotel's business interruption coverage.

Affiliated did not immediately return a call for comment.

"In the coming months, maybe even years, we will see a rash of these types of lawsuits," said Andrew Moesel, spokesman for the New York City chapter of the New York Restaurant Association, adding that many of the association's members have indicated that they are considering litigation.

Lisa Fickenscher is a reporter at Crain’s New York Business, a sister publication to Business Insurance.