N.Y. Appellate Court Affirms Summary Judgement in $58M Insurance Dispute

The Appellate Division of the New York Supreme Court, First Department, has affirmed an earlier Supreme Court decision to grant summary judgement to TransCanada Energy USA and its subsidiaries, TC Ravenswood Services Corp. and TC Ravenswood, recognizing insurance coverage for property damage and business interruption losses due to the breakdown of a generator.

The court denied the consolidated motions for partial summary judgment of insurers ACE INA Insurance and Arch Insurance Co. for a declaration in their favor.

This decision comes after TransCanada made a claim under its insurance policy for coverage of losses resulting when a power-generating turbine at its Ravenswood Generating Station in Long Island City was taken out of operation on Sept. 12, 2008, due to excessive vibrations, according to the court document. The vibrations were caused by a nine-inch crack in the rotor.

Although the generator was functioning properly until being taken out of operation, according to the court document, the crack began to form before the beginning of the insurance policy period and lengthened during the policy period.

In a March 21, 2016, underlying decision, Supreme Court Judge Barbara Jaffe ruled in favor of TransCanada on all issues of coverage with respect to its claim of more than $50 million in business interruption losses and property damage of more than $7 million because the generator was out of service for eight months from September 2008 to May 2009, the court document said.

The appellate panel unanimously upheld the Supreme Court’s decision that prior damage to the generator did not impede coverage since there is no provision in the insurance policy excluding physical loss or damage originating before the beginning of the policy period.

It also affirmed that business interruption losses occurring during the period of interruption that would have been paid afterward were covered losses, and an exclusion for payments awarded for attaining or exceeding certain production levels did not apply.

The case is National Union Fire Ins. Co. of Pittsburgh, Pa. v TransCanada Energy USA, Inc.