Power finally returned but, according to Pastabar, the landlord's failure to repair the electrical system at the premises caused Pastabar's refrigeration system to short out, requiring a complete replacement.

National Specialty's third-party claims agent investigated the conditions at the premises and, on National Specialty's behalf, disclaimed coverage under the policy on the ground that the water exclusion barred Pastabar's claims.

Pastabar filed a lawsuit, seeking a declaration that the damage it had sustained as a result of Superstorm Sandy had been caused by a covered loss under the National Specialty policy, and also seeking specific performance under the policy.

At a deposition, Pastabar's manager testified that three refrigerators and an ice machine had been damaged by either water damage or electric damage that had occurred when Con Edison had turned the electricity back on about a month after Superstorm Sandy “without checking the clocks or the watches downstairs,” thus “caus [ing] the melting of wires and burning of … most of the equipment.” Specifically, the manager testified, “[w]hen the electric turned on, it must have caused some type of spark and it caused the damage” to the equipment.

National Specialty moved for summary judgment dismissing the complaint. In connection with its motion, National Specialty submitted a sworn expert affidavit attesting that the water level at the exterior of the premises was between 2.9 and 3.9 feet above the roadway surface, and that the street flooding was due to the overflow of the East River and was a direct cause of the water entry into the building.

The engineering report attached to the affidavit included findings and photographs showing flood inundation at the location.

The trial court denied National Specialty's motion for summary judgment, and the insurer appealed.

The National Specialty Policy

The National Specialty policy provided that National Specialty:

will not pay for loss or damage caused directly or indirectly by 

among other things,

water

, defined as:

[f]lood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge). 

The policy also provided that if any of the above:

result[ed] in fire, explosion or sprinkler leakage, [National Specialty] will pay for the loss or damage caused by that fire, explosion or sprinkler leakage (if sprinkler leakage is a Covered Cause of Loss). 

The appellate court affirmed.

In its decision, the appellate court ruled that National Specialty had not established prima facie that “all of Pastabar's claimed losses” had been caused by flood waters resulting from Sandy on October 29, 2012 and, therefore, were within the insurance policy exclusion for water and floods.

The appellate court pointed out that the engineering report submitted by National Specialty contained “no findings that attributed Pastabar's damages to flood inundation or any other cause of loss.”

The appellate court said that, based on photographs that Pastabar had received from an unidentified neighbor, National Specialty's expert had made a finding concerning the exterior water level at the premises on October 29, 2012.

The appellate court pointed out, however, that the expert had “never inspected the site or the electrical wiring.”

Therefore, the appellate court found, the expert could not refute testimony by Pastabar's manager that Pastabar had suffered additional damage a month after the storm, when electricity was restored and caused “the melting of wires and burning of … most of the equipment.”

The appellate court concluded that the expert's report “never rose above the level of speculation.”

The case is Pastabar Café Corp. v. 343 East 8th Street Associates, LLC (N.Y. App.Div. 1st Dep't Feb. 21, 2017). Attorneys involved include: Gennet, Kallmann, Antin & Robinson, New York (Stanley W. Kallmann of counsel), for appellant. Law Offices of Roger D. Olson, New York (Roger D. Olson of counsel), for respondent.