In Northern Spy Food Co., LLC v. Tower Nat’l Ins. Co., an insured restaurant challenged its insured’s denial of a business interruption/food spoilage claim with regard to a power outage occurring during Superstorm Sandy. In denying the claims, the insurer contended that the policy’s flood exclusion applied, as the power outage was caused by extensive flooding at a power station.

In analyzing coverage, the Supreme Court of New York County noted that the business interruption policy language provided coverage for a suspension in operations resulting from a “direct physical loss” that is “caused by or result[ed] from a Covered Cause of Loss.” The policy further stipulated that a “Covered Cause of Loss” did not include losses falling within policy exclusions, including a flood exclusion that applied to “loss or damage caused directly or indirectly” by flooding.

The Court held that under such language, the flood exclusion applied to the business interruption claim, regardless of the location of the flood. Similarly, the Court observed that the policy provided coverage for food spoilage caused by a power outage that in turn resulted from a Covered Cause of Loss. As the power outage resulted from flooding that was not a “Covered Cause of Loss,” the Court held that the policy did not provide coverage for the claimed spoilage.

The Court therefore concluded that the insurer properly denied the policyholder’s claims, and granted summary judgment in the defendant policyholder’s favor.