No Civil Authority Coverage Arising Out of the FAA's September 11, 2001 Ground Stop Orders
January, 2005
Another court holds that there is no civil authority coverage arising out of the Federal Aviation Administration's September 11, 2001 ground stop orders halting air traffic in the United States. The Paradise Shops, Inc. v. Hartford Fire Ins. Co., Civil Action No. 1:03-CV-3154 (N.D. Ga. 12/15/04).
Facts
In Paradise Shops, plaintiff operated gift shops, newsstands and retail stores located in airport terminals around the country. Plaintiff filed suit against Hartford seeking coverage for loss of income for shops located in 51 airports as a result of the September 11, 2001 FAA ground stop orders which banned all civilian aircraft from landing and takeoff from September 11 through September 13, 2001. Plaintiff sought coverage under the policy's “Civil Authority” provision, which provided:
a. Civil Authority
Coverage: This insurance is extended to apply to Business Income and Extra Expense loss when access to insured premises is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property away from your premises. This coverage will pay up to 30 consecutive days from the date of the civil action.
Analysis
Both parties moved for summary judgment on the coverage question.
Plaintiff argued that “as a result of” the FAA orders, access to all of its airport shops was “prohibited” because “there was no reason for the traveling public to go to the airport, and the public was discouraged from doing so.” Plaintiff also contended that, as a further result of the FAA orders, the traveling public was specifically denied access to the post-security screening areas of all the nation's airports and plaintiff's shops located in those areas. Finally, plaintiff argued that its doors were closed from September 11, 2001 through September 13, 2001 because individual airport authorities around the nation specifically informed its general managers that the airports would be closed.
Hartford, by contrast, maintained that nothing in the FAA orders closed operations at all airports or specifically prohibited access to any of plaintiff's stores. In particular, Hartford argued that the policy did not cover plaintiff's losses because “(a) no order of civil authority relied upon by plaintiff was issued as the direct result of property damage by a covered peril away from its premises; and (b) no order of civil authority, by the FAA or any other, ‘specifically prohibited access' to any airport or store covered by the policy.”
The district court granted summary judgment to Hartford. In so ruling, the court first held that no order of civil authority was issued as a direct result of a covered cause of loss. The court explained that the covered cause of loss to property away from plaintiff's premises was the physical loss and damage to the World Trade Center, the Pentagon and the field in Pennsylvania caused by airplanes hijacked on September 11, 2001. Accordingly, as the court explained, “to satisfy the direct result provision of the Policy, plaintiff must be able to establish that some order of civil authority was issued as a direct result of the physical damage sustained by the World Trade Center, the Pentagon, or the field in Stony Creek Township, Pennsylvania.” The court concluded that the plaintiff could not establish this element.
The court further noted that because the Secretary of Transportation, Norman Mineta, specifically stated that he issued the second ground stop order “with the risk of additional flights that might be used as terrorist weapons,” the ground stop order was issued “as a result of the threat of additional terrorist acts involving the nation's airlines and not because of the existing disasters at the World Trade Center, the Pentagon, or Stony Creek Township, Pennsylvania.” Accordingly, and consistent with the decision by the Northern District of Illinois in City of Chicago v. Factory Mutual Ins. Co., 2004 WL 549447 (N.D. Ill. March 18, 2004), the court held that the ground stop order was imposed to protect against further terrorists attacks and that an order designed to prevent, protect against or avoid future damage is not a “direct result” of already existing property damage or loss.
The court also held that access to the plaintiff's premises was not specifically prohibited by order of a civil authority. Under the Civil Authority clause in the Policy, plaintiff had to establish that some order of civil authority “specifically prohibited” access to plaintiff's premises. The court held that it saw no reasonable means of construing the Secretary's Order to ground all aircraft as an order specifically prohibiting access to the plaintiff's premises.
Learning Point:
Paradise Shops is one of the most recent civil authority decisions relating to the FAA ground stop orders. Other decisions rejecting arguments that the FAA ground stop orders triggered civil authority coverage include City of Chicago v. Factory Mutual Ins. Co., supra; Southern Hospitality, Inc. v. Zurich American Ins. Co., 393 F.3d 1137 (10th Cir. 2004); and Philadelphia Parking Authority v. Federal Ins. Co., 2005 U.S. Dist. LEXIS 460 (S.D.N.Y 2005). However, the court ruled in favor of the insured as to civil authority coverage based on the FAA ground stop orders in U.S. Airways, Inc. v. Commonwealth Ins. Co., 2004 WL 1094684 (Va. Cir. Ct. May 14, 2004) and 2004 WL 1637139 (Va. Cir. Ct. July 23, 2004). We will continue to monitor this unique coverage question and provide our readers with updates as they occur.
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