Last month, the New York Court of Appeals held that a tenant breached its lease and, in doing so, violated New York Insurance Law § 3404. The court ruled that the lease was breached because the tenant obtaining insurance coverage that explicitly excluded terrorism losses from coverage. It also held that the lease required the tenant to procure coverage for loss or damage by fire and other named perils under the terms of the New York Standard Fire Insurance Policy and Extended Coverage Endorsement in effect in 1989 (the "1989 Endorsement"). Additionally, the court held that the 1989 Endorsement required the tenant to procure insurance covering the named perils without excluding “terrorism." TAG 380, LLC v. ComMet 380, Inc., 2008 NY Slip Op. 04899 (June 3, 2008).
In the wake of September 11 and before the enactment of the Terrorism Risk Insurance Act of 2002 (TRIA), the tenant’s insurer issued a policy that expressly excluded from coverage all losses incurred as a result of terrorism. The Court of Appeals held that under the policy, the tenant did not obtain the insurance coverage required by its lease – coverage for the building against fire and loss or damage by other risks under the Standard Fire Insurance Policy and Endorsement. The court stated that although it was undisputed that the lease was silent whether it included or excluded acts of terrorism, the term “terrorism” could, theoretically, cause fire damage to the building, and coverage against all direct loss by fire was within the scope of the intended coverage under the lease’s terms.