## Facts

- Duane Reade operated a highly profitable drugstore on the main concourse of the World Trade Center (WTC), which was destroyed on September 11, 2001.
- St. Paul issued Duane Reade a property policy with business interruption (“time element”) coverage limited to a defined “Restoration Period.”
- The basic time-element coverage period was “such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace” the destroyed property, followed by more limited extended coverage.
- St. Paul paid approximately $9.8 million based on its calculation of lost profits during an initial period to open a new store plus an additional period of reduced profits after reopening.
- The parties disputed how to measure the Restoration Period:
  - Duane Reade sought coverage until it could actually reopen in a rebuilt WTC complex.
  - St. Paul contended coverage ended when Duane Reade could have opened a replacement store nearby with reasonable diligence.
- The district court entered a declaratory judgment construing the Restoration Period as the hypothetical time required, using due diligence and dispatch, to rebuild the store and resume “functionally equivalent operations” at the WTC location.
- St. Paul appealed, challenging ripeness, the effect of a policy “No Action” clause, and the Restoration Period construction.

## Issues

1. Whether the declaratory judgment action presented a ripe, justiciable controversy despite unresolved quantification of further loss.
2. Whether the policy’s “No Action” clause barred a declaratory judgment action seeking construction of coverage terms before the loss amount was finally determined.
3. Whether the Restoration Period ended when the insured could open any nearby replacement store, extended until the entire WTC complex was rebuilt, or instead was measured by the constructive time to restore functionally equivalent operations at the insured premises.

## Decision

- The court held the dispute was ripe and suitable for declaratory relief because the parties had a concrete, present conflict over policy obligations following an actual loss and partial payments.
- The court held the “No Action” clause did not bar an action seeking judicial construction of policy terms, as distinct from a suit to recover a specific sum of money.
- The court rejected St. Paul’s “replacement anywhere nearby” approach as inconsistent with policy language tying the period to rebuilding, repairing, or replacing the destroyed property.
- The court rejected Duane Reade’s position that coverage ran until the entire WTC complex was rebuilt, as inconsistent with the policy’s temporal limits and focus on the insured property.
- The court affirmed the standard that the Restoration Period is the hypothetical time, using due diligence and dispatch, to rebuild the store and resume functionally equivalent operations at the insured location; the precise duration was left for further proceedings.

## Legal Principles

- A declaratory judgment action is justiciable when it will clarify the parties’ legal relations regarding existing insurance obligations after a covered loss, even if ultimate damages are not yet fully quantified.
- A typical “No Action” clause barring suits “to recover under the policy” does not preclude an insured from seeking declaratory construction of coverage provisions absent a demand for immediate payment of a specific amount.
- Business interruption coverage tied to a “Restoration Period” is measured by the time that would reasonably be required, with due diligence and dispatch, to rebuild, repair, or replace the insured property and resume functionally equivalent operations.
- The Restoration Period is not defined by the time to open any substitute location nor by the time to complete broader redevelopment of surrounding property unrelated to rebuilding the insured premises’ functionally equivalent operations.

## Conclusion

The Second Circuit allowed declaratory interpretation of business interruption coverage despite unresolved loss valuation and held that the policy’s Restoration Period is determined by the constructive time needed, with due diligence and dispatch, to restore functionally equivalent operations at the insured WTC location, rejecting both a mere-relocation endpoint and an endpoint tied to full reconstruction of the entire complex.


Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384 (2d Cir. 2005)