Another 9/11 Related Decision; Tenant Is Denied Coverage Under A Building Owner/Operator's Policy, Because Owner/Operator Has No Insurable Interest In Tenant's Property
September, 2004
The United States District Court for the Southern District of New York recently held that a tenant seeking coverage for temporary improvements lost in the destruction of 7 World Trade Center on September 11, 2001 is not insured for those destroyed improvements, because it is unable to demonstrate that the building’s operator/manager had an insurable interest in the tenant’s property or that it is a loss payee. Citigroup Inc., et al. v. Industrial Risk Insurers, et. al., No. 02 Civ. 7318, 2004 U.S. Dist. LEXIS 17020 (S.D.N.Y., August 24, 2004).
Citigroup Inc. (“Citigroup”) was a tenant in 7 World Trade Center. The building’s operator and manager, 7 World Trade Center Company, L.P. (“7WTCLP”) acquired insurance from Industrial Risk Insurers (“IRI”).
When 7 World Trade Center collapsed on September 11, 2001, Citigroup suffered significant property loss. In August 2002, Citigroup presented a $288 million claim to IRI for Citigroup’s destroyed “improvements” to its offices at 7 World Trade Center. Citigroup, at 5. The “improvements” which Citigroup sought coverage were those that Citigroup could “take out with us when we vacate the premises and the building doesn’t fall down.” Id. at 10. In other words, Citigroup was seeking coverage not for permanent fixtures, but for temporary or removable improvements that remained tenant’s (i.e., Citigroup’s) property at all times. IRI denied coverage on the basis that Citigroup was not named as a loss payee under its Policy to 7WTCLP. Citigroup sued IRI and 7 WTCLP was allowed to intervene.
IRI and 7WCTLP moved for summary judgment. 7 WTCLP argued: (1) Citigroup cannot show that a tenant’s property is covered by the Policy; (2) Citigroup is not a loss payee under the Policy; and (3) even if Citigroup can establish that it was a loss payee, it would be a loss payee “as [its] interests may appear, and Citigroup has no interest here because tenant’s property is not insured by the policy.” Id. at 8. IRI also argued that Citigroup is not a loss payee and that neither IRI, nor any agent of IRI, issued a certificate of insurance naming Citigroup as a loss payee or had an obligation to do so. 7WTCLP sought a declaration that Citigroup was not entitled to the IRI proceeds.
On August 24, 2004, U.S. Judge Miriam Goldman Cederbaum determined that the Lease governs whether 7 WTCLP had an insurable interest in its tenant’s property. With the exception of removable fixtures that remained a tenant’s property, all other improvements became the property of 7 WTCLP upon installation. Again, it was the removable fixtures -- which remained Citibank’s property -- for which Citibank was seeking coverage. Because all the other improvements (i.e., permanent improvements) made by Citibank instantly reverted to the ownership of 7WTCLP under the terms of the Lease, Citibank knew that it had no legitimate claim with respect to the destruction of the permanent improvements under the IRI Policy.
7 WTCLP, the insured, argued that the Policy does not cover tenant’s property because as landlord, the insured, does not own the property and had no obligation to replace it. Judge Cederbaum agreed, holding:
By definition, Tenant’s property is owned by Citigroup and not 7 WTCLP. Moreover, although 7 WTCLP had substantial responsibilities to replace or rebuild damaged parts of the building, the Lease makes plain that this obligation did not extend to Tenant’s Property. 7 WTCLP did not own, have custody of, use, or have an obligation to replace Tenant’s property. Therefore, it had no insurable interest in Tenant’s Property. Thus, whether or not Citigroup is a loss payee, the property it lost is not insured by IRI under the Policy on which Citigroup sues.
Id. at 14. Because the Policy simply does not cover the property for which it sought recovery, Citigroup could not resuscitate its claim regardless of whether it was a loss payee. In any event, Judge Cederbaum noted that Citigroup was not listed as a loss payee in the Policy and had not produced evidence that IRI issued any Certificate of Insurance to any entity naming Citigroup as a loss payee. Id. at 22. Citigroup had, however, relied on a Certificate of Insurance issued by a broker, which named Citigroup as a loss payee.
Judge Cederbaum explained that when a certificate of insurance issued to a third-party expressly states that it does not change the Policy listed on the Certificate, the language of the Policy controls. Id., citing Taylor v. Kinsella, 742 F.2d 709 (2nd Cir. 1984). Accordingly, a Certificate of Insurance issued by a broker does not favor coverage because a broker works for and is a representative of the insured, and does not have authority to bind the insurer. Judge Cederbaum concluded that where a third-party is not covered by the Policy, it cannot argue based on a Certificate of Insurance that the insurer is estopped from denying coverage. Id. at 25.
Judge Cederbaum noted that the broker’s Certificate which named Citigroup as a loss payee “as [its] interests may appear” clearly indicated that is was issued as a matter of information only. As such, the Certificate did not confer any rights upon the certificate holder and does not alter the coverage afforded by the Policy. Therefore, Judge Cederbaum held that “the Policy, which does not name Citigroup as a loss payee, is the controlling document,” and denied Citigroup’s claim for coverage under the IRI Policy, which did not name Citigroup. Id.
Learning Point:
Improvements of a temporary nature made by a tenant are arguably not covered under a building owner’s/operator’s policy -- regardless of whether the tenant is a loss payee under the policy -- because the building owner/operator has no insurable interest in the tenant’s property. Additionally, a Certificate of Insurance issued by a broker does not automatically create coverage, because a broker works for and is a representative of the insured, and does not have authority to bind the insurer. Accordingly, where a third-party is not clearly listed as a loss payee and/or insured under a policy, an insurer is not estopped from denying coverage to that third-party, even if the Certificate of Insurance lists that third-party as a loss payee. •
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