## Facts

- Duane Reade, Inc. operated a highly profitable pharmacy in the World Trade Center concourse and insured its operations under a St. Paul Fire & Marine Insurance Company property policy with “Time Element” (business interruption) coverage.
- On September 11, 2001, the World Trade Center complex was destroyed, causing total loss of the store and interruption of operations at that location.
- Duane Reade sought business-interruption coverage for a period tied to the time actually required to rebuild the World Trade Center complex and reopen there.
- St. Paul contended the policy limited coverage to a shorter “period of restoration,” which it argued was the time reasonably necessary to open a replacement store in the vicinity.
- Duane Reade had submitted a proof of loss and had received substantial business-interruption payments; damages and valuation questions were treated as subjects for appraisal rather than immediate judicial resolution.
- The remaining dispute presented cross-motions for summary judgment on the legal meaning of the policy’s business-interruption provisions, especially the “Restoration Period.”

## Issues

1. How should the policy’s “Restoration Period” for business-interruption coverage be defined when the insured premises are totally destroyed and the surrounding complex may not be rebuilt promptly (or at all)?
2. Does the restoration period end when the insured could open a replacement store somewhere nearby (insurer’s view), or does it continue until the complex is actually rebuilt and the insured can reopen there (insured’s view)?
3. What declaratory judgment is appropriate where the court decides contract interpretation but appraisal is the vehicle for determining duration and amounts?

## Decision

- The court rejected both parties’ extreme interpretations of the “Restoration Period.”
- The court held the restoration period is measured by the hypothetical time it would take, with reasonable speed and due diligence, to rebuild, repair, or replace the destroyed insured property.
- The court declared that coverage continues until Duane Reade could resume functionally equivalent operations in the location where the destroyed store stood.
- St. Paul’s motion for summary judgment was denied in full.
- Duane Reade’s motion was granted in part, including dismissal of St. Paul’s counterclaims and entry of declaratory relief on the restoration-period standard.
- The court left the factual determination of how long the restoration period would be under that standard to appraisal.

## Legal Principles

- Business-interruption “period of restoration” clauses are generally construed as prospective and hypothetical: the time the property should reasonably take to be rebuilt, repaired, or replaced with due diligence, not the time operations are actually restored.
- A restoration period tied only to opening a substitute location “in the vicinity” improperly detaches coverage from the insured premises and the contract’s rebuild/repair/replace language.
- A restoration period extending until completion of large-scale third-party reconstruction projects creates an open-ended coverage duration not supported by standard restoration-period wording.
- Courts may decide the meaning of policy language as a matter of law while directing appraisal to resolve fact-bound questions such as duration under the declared standard and valuation of loss.

## Conclusion

The court construed the business-interruption restoration period as the hypothetical reasonable time to rebuild, repair, or replace the destroyed premises, rejecting both a rule that would end coverage upon nearby relocation and a rule that would extend coverage until the World Trade Center complex was actually rebuilt, and it referred the case-specific duration and valuation to appraisal.


Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 279 F. Supp. 2d 235 (S.D.N.Y. 2003)