"Property Damage"

June 29, 2012

What a New York Business Should Know About Recovering for Damage to its Property (III)

by The Law Firm of Grasing & Associates

We have been discussing how much a New York business can recover from someone who damages its property. If the property is damaged, but not destroyed, the business normally can recover either the loss in market value caused by the damage, or the cost of repairs, whichever is less. See Fisher v. Qualico Contracting Corp., 98 N.Y.2d 534, 539 (2002). See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). If the property is totally destroyed, it can recover the reasonable market value of the property just before it was destroyed. See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). If the destroyed property is a business’ sales inventory, the business normally can recover the wholesale cost of the merchandise, because that is what it would cost to replace the merchandise, and any damages actually sustained by reason of the absence of the articles while they are being replaced. See Dubiner’s Bootery, Inc. v. Gen. Outdoor Adver. Co., 10 A.D.2d 923 (1st Dept. 1960). These rules seem intrinsically fair because each will put the business back to where it was before the loss.

A business also can try to recover for damage to its property by making a claim under the property coverage of its business owner’s insurance policy. If the policy covers the type of property that was damaged, the damage was caused by something the policy insures against, and the insured otherwise has lived up to its obligations under the policy, the business owner should be able to recover for the damage to its property. The amount the business can recover depends on the language of the policy. It might be able to recover only the actual cash value of the property. One way to determine that is replacement cost minus depreciation. It might be able to recover the replacement cost of the property, without deduction for depreciation. For the destruction of sales inventory, it might be able to recover the sales price of that inventory, if it has purchased the proper coverage. Sometimes, an insurance policy, depending on how it is written, might reimburse the business for its lost income. Even then, however, the business should be aware that it cannot recover both the retail selling price of the damaged inventory and the income it would have earned by selling that same merchandise.

This is illustrated by J & R Electronics Inc. v. One Beacon Ins. Co., 35 A.D.3d 169 (1st Dept. 2006). The case involved J&R Electronics, an electronics retailer in Manhattan that was badly damaged as a result of the terrorist attacks in New York City on September 11, 2001. As a result, it made a claim to recover, under its policy of property insurance with One Beacon Insurance Company, for, among other things, the damage to its merchandise, and for its loss of business income. Pursuant to the terms of the policy, One Beacon paid J&R the selling price minus unincurred expenses for the damaged merchandise. That basically means that J&R was paid the selling price minus the money it normally would have spent in order to sell the merchandise. When One Beacon paid J&R’s claim for loss of business income, it subtracted the amount it paid J&R for the sales price of the damaged merchandise. J&R objected to this, claimed the sales price should not be subtracted from its lost income, and sued. The appellate court held that J&R could not recover both the selling price of the merchandise and the lost income based on its failure to sell that same merchandise; to do so would have been to give J&R a double recovery.

June 22, 2012

What a New York Business Should Know About Recovering for Damage to its Property (II)

by The Law Firm of Grasing & Associates

A business has to know how to recover for damage to its property. Most times it will need to use the money to repair or replace the damaged property or, in the most severe cases, to re-start the business.

In our last entry, we spoke about how a business can establish the amount it can recover from someone who damages its property. Normally, the business can recoup either the reasonable cost to repair the damaged property, or the loss of market value caused by the damage, whichever is less. See Fisher v. Qualico Contracting Corp., 98 N.Y.2d 534, 539 (2002). See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). Where the property is totally destroyed, the owner can recover the market value of the property immediately before it was destroyed. See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934).

Though everyone likes to think the worst will never happen, it can, and often does, in strange and unexpected ways. Recently, on Long Island, a car crashed into the front of a house and drove all the way through to the backyard. This happened in the middle of the night, while the homeowner was asleep. Similar damage also can happen to a business. A couple of months ago, a car drove through the front of a print shop in Florida, through where the supplies were kept, while the store owner was helping a customer. Only a few weeks earlier, a car drove through the back of the same store.

Property damage affects all types of businesses, from retail stores to factories, from start-ups to well established companies. This winter a fire heavily damaged three stores in Smithtown, Long Island. The fire reportedly started in a bar, which had to be closed for repairs; it had opened only a few weeks earlier. In May, a bell factory in East Hampton, Connecticut, was so badly damaged by fire that it was trying to temporarily re-locate so it could re-start production on a limited basis while rebuilding its facilities; the company had operated for 180 years and was the last bell factory in this country. Sometimes, property damage, even from a mundane cause, can be so extensive that it totally shuts down a business. Last week, a custom car tuning shop outside of Rochester, New York was damaged so severely by fire that it had to close; the fire reportedly started in an electrical circuit box.

It is clear that all types of businesses suffer when their property is damaged. One affected by a special set of rules is a retail store. For example, if a car drove through a grocery store, or a clothing shop, in New York, what could the store owner recover from the driver for the destruction of its stock or sales inventory? That would depend on the market value of the property immediately before it was destroyed. See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). What, however, is the market value of the destroyed food, or clothes, and how is it determined?
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June 19, 2012

What a New York Business Should Know About Recovering for Damage to its Property

by The Law Firm of Grasing & Associates

Everyone knows that if someone damages their property, they should be able to make that person pay for the damage. The Owner of the damaged property should be able to recover as long as it can prove the other person was liable for the damage. Many people, however, including business owners, are unclear about how much they can recover, and what they need to do in order to recover.

A business needs its property to operate, whether that’s its equipment, stock, inventory, or its office or warehouse space. When property is damaged in New York, how much can the owner recover from the party that caused the damage, and how is that amount determined? Knowing the answer, in order to ensure that the damage can be repaired, is essential to good business planning. The answer depends, to a large degree, on the type of property and how badly it is damaged.

Property Damage can occur at any time, and often in unexpected ways. It can consist of damage to real property, such as to a building, or damage to personal property, such as to the contents of a building, the personal belongings in a house or an apartment, the business personal property in a leased store or office, or the equipment and stock a business uses to operate. It can affect anyone who owns property, including a business, a landlord, a tenant, a homeowner, or a car owner.

Recently, there was a story in the news that shows just how easily property can be damaged and how quickly the cost of repairs can add up. A hotel in Austin, Texas, claims it suffered $10,000 of property damage because several beer bottles were dropped from the 29th floor into its pool and hot tub. As a result, the pool and hot tub had to be drained to make sure that all of the glass was removed so that no one would be hurt, and the filters for the pool and hot tub had to be repaired. Evidently, a little mischief can cause a lot of damage. The beer bottles were dropped from a privately owned condominium located above the hotel. According to the article, the owner of the Hotel planned to sue the owner of the condominium to recover the cost to repair the damage. If this happened in New York, what would the Hotel have to do to establish that it suffered $10,000 of damage?

When property is damaged in New York because of the negligence of someone else, like the person who dropped the beer bottles into the Hotel pool (the “Defendant”), the basic goal is to make the Owner of the property “whole”. That means that a court will try to put the Owner back into the exact same position she was in immediately before the damage occurred. See Ward v. New York Cent. R. Co., 47 N.Y. 29, 33 (1871). The Owner of the damaged property cannot wind up being better off than she was before the property was damaged. See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44, (1934). This generally means that the Owner can recover either the difference between the market value of the property immediately before and immediately after it was damaged, or the reasonable cost to restore the property to the same condition it was in before it was damaged (the “Repairs”), whichever is less. See Fisher v. Qualico Contracting Corp., 98 N.Y.2d 534, 536-37 (2002), and Dilapi v. Empire Drilling & Blasting, Inc., 62 A.D.3d 936, 937, (2nd Dept. 2009).
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