United States: $48 Million Business Interruption Loss Affirmed By New York Court

In the world of first-party insurance, there are two seemingly simple concepts: (1) property insurance policies cover all risks of physical loss or damage during the policy period, and (2) business interruption insurance covers the insured's lost profits during the period of restoration. Sometimes, however, as was the case in a recent coverage dispute in New York, insurance companies try to complicate those basic concepts in an attempt to avoid coverage. Fortunately, in those cases, the trial judge stuck to basics and rejected the insurers' attempt to avoid paying for damage to a turbine and an energy company's lost profits that resulted from that damage. See National Union Fire Ins. Co. of Pittsburgh, PA v. TransCanada Energy USA, Inc., 2016 WL 1235115 (N.Y. Sup. Ct., N.Y. County, Mar. 2, 2016) ("TransCanada").

Insurer's Allegation of Damage Prior to Policy Inception Was Not a Defense to Coverage

In TransCanada, at one of TransCanada's electric generating facilities in New York, excessive vibrations were detected in one of the turbines in August-September 2008. As a result, that turbine was taken out of service, repaired, and put back into service on May 18, 2009. TransCanada made a claim for more than $48 million for lost sales of capacity that resulted from the period of time the turbine was out of service.

TransCanada had a property insurance policy that covered all risks of physical loss or damage that occurred during the August 26, 2008 to June 1, 2009 policy period. The policy also provided business interruption coverage that covered total net sales during the "period of liability." The "period of liability" begins with "the time of physical loss or damage" and ends with the time the building or equipment "could be: (i) repaired or replaced; and (ii) made ready for operations, under the same or equivalent physical and operating conditions that existed prior to the damage." 2016 WL 1235115 at *2-3.

The insurance companies denied coverage on several grounds, including that the loss or damage was caused by a crack that formed before the policy period. The court rejected that argument, holding that it was irrelevant that the crack formed before the policy period when damage to the turbine occurred during the policy period. Id. at *5-7. The court noted that the breakdown of the turbine was caused by a crack that expanded and caused property damage during the policy period. Thus, the court concluded that "[i]t is undisputed that TransCanada's property sustained a physical loss or damage when the policy was in effect, and that there is no provision in the policy that excludes physical loss or damage originating before the commencement of the policy period, or any requirement that the cause of the loss or damage occur during the policy period . . . ." Id. at *5. In other words, the court focused on the basics of the policy language and the purpose of the policy.

Policy Covers Business Interruption Losses After Damaged Property Was Returned to Service

The insurers also denied coverage for TransCanada's lost profits, because "most of TransCanada's approximately $48 million claimed loss of capacity sales was only realized at auctions of capacity held after May 18, 2009," when the turbine was put back into service and when the "period of liability" ended. Id. at *7. TransCanada contended that, because the state agency that conducts the auctions uses a rolling average of capacity periods in calculating the amount of capacity sales, and the capacity produced during the period of liability was not sold until after the period of liability, the lost capacity sales should be covered.

The court agreed with TransCanada. The court started with the basics–that one key "purpose of business interruption insurance is to 'return to the insured the amount of profit that would have been earner during the period of interruption had a casualty not occurred' . . . ." Id. at *8 (citation omitted). In this case, because the lost profits caused by the decreased capacity during the period of liability were not manifest or realized until the auctions were held after that period, and those losses resulted from the physical damage, TransCanada was entitled to be insured for those lost profits. Id. at *9. The court found the insurers' argument untenable: "Acceptance of the insurers' interpretation of the policy would result in a windfall to them as they would not be obligated to pay TransCanada any amount for its business interruption despite it being undisputed that TransCanada's business was interrupted for months, simply because TransCanada did not actually receive the decreased revenue until months after the repairs were made." Id.


Even seemingly straight-forward property insurance claims can lead to denials and turn out to be complex and difficult. Policyholders need knowledgeable and experienced assistance in navigating these claims. See Largest Property Damage and Business Interruption Claims. One key focus is to stick to the basics of what property insurance policies cover: physical loss or damage and lost profits. From that starting point, coverage can be further expanded based on applicable case law.

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.