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NYU sues FM Global for denied $1.47 billion in Superstorm Sandy coverage

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New York University is suing an FM Global unit for $1.47 billion in coverage it claims was denied in connection with property and business interruption losses sustained from 2012's Superstorm Sandy.

Johnston, Rhode Island-based FM Global said in a statement the litigation is “without merit.”

NYU contends the insurer has incorrectly denied coverage on the basis that a $40 million flood sublimit is applicable, among other issues, according to the complaint filed Wednesday in U.S. District Court in New York in New York University v. Factory Mutual Insurance Co. The complaint focuses on damages to the university's medical facilities.

NYU, which has used FM Global as its insurer for about 30 years, has an “all risk” policy providing $1.85 billion in limits for its more than 100 locations, according to the complaint.

The policy that was in effect during Sandy, which hit New York on Oct. 29, 2012, covered the period July 1, 2011 to July 2, 2012 and was subsequently extended through July 1, 2013, and insured against losses including property damage and business interruption.

NYU said the policy had a $250 million flood sublimit and a $40 million “sub-sublimit” that applied to only four locations, and did not apply to business interruption losses.

NYU suffered “massive” property damage and business interruption losses during the storm, including being forced to close its inpatient and outpatient facilities — its emergency department was closed for more than a year — and evacuating patients, according to the complaint.

It said NYU lost “substantial” revenues from patient treatment services as a result of the storm, as well as significant research revenue.

Ultimately, the Federal Emergency Management Agency provided NYU with a total grant of $1.13 billion, according to the complaint.

NYU has submitted a preliminary claim under its property damage coverages for $785.6 million and under its business interruption coverages for $681.2 million for a total claim of $1.47 billion.

FM has taken the position that application of the policy's definition of flood “subjected almost all of NYU's claim to the flood sublimit,” says the complaint.

“FM's self-serving and overly broad interpretation of how the flood definition applies is so onerous that it would render the definition unconscionable and unenforceable. When properly construed and applied, the flood definition does not limit NYU's claim in the manner FM contends,” the complaint says.

The complaint also charges that FM “has continually and strongly asserted and continues to assert” that the $40 million sub-sublimit applies more broadly than the locations named in its policies It states also that FM incorrectly claims that the $250 million sublimit applies to business interruption losses, among other charges.

FM Global said in a statement, “Notwithstanding our best efforts to resolve our differences, it is regrettable that NYU has resorted to filing this lawsuit. FM Global has at all times honored our obligations under the policy provided to NYU. We promptly paid $40 million to NYU within weeks of the Superstorm Sandy flood. The allegations in this complaint are without merit and we will oppose it vigorously.”

In July, Zurich American Insurance Co.prevailed in a case before the New York Supreme Court's Appellate Division limiting flood claims to $5 million in connection with Superstorm Sandy litigation.