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Supermarkets win cover in blackout-related dispute


TRENTON, N.J.—A group of supermarkets has won coverage for food spoilage that occurred when a 2003 power grid failure left most of the northeastern United States and eastern Canada without electricity for four days.

A three-judge panel of the Superior Court of New Jersey Appellate Division ruled Wednesday that the blackout caused property damage to the affected utilities, thereby triggering coverage under an all-risks property policy extension that Wakefern Food Corp. had purchased from Liberty Mutual Fire Insurance Co.

Keasbey, N.J.-based Wakefern is one of the largest retailer-owned cooperatives in the United States, operating nearly 290 ShopRite stores.

"A 'Services Away from Covered Location Coverage Extension' extended coverage for consequential loss or damage resulting from an interruption of electrical power to plaintiffs' supermarkets where that interruption is caused by physical damage to specified electrical equipment and property located away from the supermarkets," the appellate court concluded.

The trial court had granted summary judgment to the insurer, holding that the grid was not physically damaged because it could be returned to service after the interruption.

The massive power outage occurred in the summer of 2003, affecting an estimated 40 million people in eight U.S. states and 10 million people in Ontario, according to the New York-based Insurance Information Institute. Outage-related economic losses were estimated at $6 billion, though insured losses were minimal, according to the III.

Because the court ruled nearly six years after the power outage occurred and most policies have time limitations for filing claims, it is unlikely to have widespread application to other blackout-related damage claims, attorneys said. However, the ruling could affect any pending blackout coverage cases if the policyholders had similar coverage extensions, the attorneys said.

But the New Jersey ruling in Wakefern Food Corp. et al. vs. Liberty Mutual Fire Insurance Co. may have applications outside of blackouts because it bolsters a 2000 Arizona court ruling in American Guarantee & Liability Insurance Co. vs. Ingram Micro Inc. that granted coverage for data corruption that rendered a computer system useless, said Ed Joyce, a partner in the insurance recovery practice at Orrick, Herrington & Sutcliffe L.L.P. in New York who was not involved in the case.

"It's basically saying loss of use is physical damage" for purposes of interpreting coverage, Mr. Joyce said.

Although the Wakefern case was remanded to the trial court, it is likely to be resolved quickly because the extent of damages had already been determined prior to the appeal, said Sherilyn Pastor, a partner and head of the insurance coverage group at McCarter & English L.L.P. in Newark, N.J., who represented the policyholder.

"We don't expect much change because the claim was already adjusted," she said. Damages were set at $1.9 million.

Attorneys representing Liberty Mutual did not return phone calls seeking comment.