The immediate collapse threat at 235 East 42nd Street has eased, but for businesses disrupted by the Midtown Manhattan emergency, the insurance recovery process may only be beginning.
Evacuations, street closures and access restrictions could generate claims involving civil authority, ingress and egress, service interruption and event cancellation coverage. Whether those claims succeed will depend on each policy’s wording, the cause of the structural damage and the duration and effect of government restrictions.
Christopher Wilkie (pictured), international executive general adjuster at Crawford & Company’s Global Technical Services, said affected businesses should begin documenting losses and additional expenses immediately, even if they suffered no physical damage of their own.
Construction workers at the former Pfizer headquarters spotted buckling steel columns on the 21st floor on the morning of July 7. The discovery triggered the evacuation of at least nine neighboring buildings and the creation of a closure zone stretching from 40th to 45th streets between First and Third avenues.
No injuries were reported. Emergency shoring was installed across multiple floors, and by July 8, the New York City Department of Buildings had confirmed that the structure was stable. Streets have since reopened, although a handful of buildings and at least one restaurant remained vacated in the days following the incident.
“From the zone of impact or the quarantine area, potential claims for civil authority and perhaps utility or service interruption certainly come to mind,” Wilkie told Insurance Business. “I know some policies also have coverage for event cancellation and things like that, so we could see some of that come into play.”
However, the absence of physical damage at a neighboring business does not automatically establish coverage.
Civil authority provisions may respond when a government order prohibits access to an insured location because of covered damage elsewhere. Ingress and egress coverage may apply when access is prevented or impaired, while service interruption provisions typically depend on damage affecting specified utility or service infrastructure. The precise requirements, waiting periods, geographic limits and coverage periods will vary by policy.
Direct business interruption coverage, meanwhile, is generally tied to covered physical loss or damage at the insured premises.
“It’s not so much that there is a specific exclusion that comes to mind,” Wilkie said. “The question is whether we have checked all the boxes relating to whether a covered event has occurred yet.”
Certain manuscript policies could contain language broad enough to provide coverage, he added, but each claim would need to be assessed against its individual terms and circumstances.
Affected businesses should promptly notify their insurers or brokers and establish an accounting process to track costs associated with evacuation orders, access restrictions, temporary relocation and operational changes.
A claim package should include pre- and post-event financial statements, payroll records, reservations and cancellation logs, invoices for additional expenses and copies of relevant government notices, among other documentation. Evidence of changes in customer activity, such as observations about foot traffic, may also help explain lost revenue.
“The insured should put together a comprehensive package of objective and subjective information from before and after the loss to tell the story of how the business and its revenue performance were affected by the event,” Wilkie said.
The scale and duration of the disruption may depend as much on government decisions as on the time needed to complete physical repairs.
The New York City Department of Investigation has opened an inquiry, while the Department of Buildings is reviewing project plans and assessing whether work at the former Pfizer building followed approved engineering specifications. The project is intended to create roughly 1,600 apartments and has been described as one of the largest office-to-residential conversions in the US.
Wilkie said claims arising from the September 11 attacks and Superstorm Sandy demonstrated how exclusion zones and agency decisions can delay the point at which businesses, property owners and contractors are permitted to return.
“Before officials release the zone and open it back up, you may not be able to enter and begin mitigation, cleanup or repairs,” he said. “You may be mobilized and ready to go, thinking everything is set. However, for reasons that may be unknown to you, the authority having jurisdiction may still bar entry for a period of time.”
For claims involving direct physical damage, those decisions could become central to determining the applicable period of restoration. Examiners may need to distinguish between the time reasonably required to stabilize or repair the property and additional delays caused by regulatory orders, investigations or enhanced safety reviews.
Neighboring businesses relying on civil authority or ingress and egress coverage may face a separate analysis governed by the time limits and access requirements in their policies.
“Claims examiners are going to have to ask how long the restoration should have taken, absent any decisions that may have lengthened the period beyond what would otherwise have been reasonable,” Wilkie said.
