FL Appellate Court Affirmed CM Summary Judgment On $33 Million Extra Expense Claim Arising From 9/11
February 4, 2008
Clausen Miller partners Andrew C. Jacobson and Kirk M. Zapp successfully obtained summary judgment on behalf of six primary and excess property insurers in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida in ANC Rental Corp. v. Lexington Ins. Co., Case No. 03-021499. Clausen Miller partner Melinda S. Kollross successfully handled the appeal. The District Court of Appeal for the Fourth District of Florida affirmed the summary judgment in a per curiam ruling with no written opinion.
This first-party property insurance coverage dispute related to the tragic events of September 11, 2001. At the time of the terrorist attacks of September 11, 2001, the plaintiffs rented cars to the public under the National and Alamo brand names from more than 220 on-airport and off-airport locations in all 50 states in the United States. The plaintiffs brought suit against their primary and excess property insurance carriers, seeking insurance coverage for property damage, time element losses (civil authority, ingress/egress, contributing time element, and contingency coverage), business interruption losses and extra expenses “resulting from the events of 9/11.” The plaintiffs alleged losses in excess of $200 million.
After almost two years of litigation and extensive discovery, the plaintiffs withdrew all of their claims for coverage except for their extra expense claim. The plaintiffs’ original claim for extra expense coverage was $9.7 million for system-wide costs related to fleet turnback, fleet maintenance, fleet transportation, personnel, and the decreased value of vehicles sold at auction. During the litigation, however, the plaintiffs increased their extra expense claim to over $82 Million for costs and “professional fees” related to their bankruptcy filing. Following further discovery, the plaintiffs lowered the amount of their extra expense claim to more than $33 Million.
The insurers moved for summary judgment because the plaintiffs could not demonstrate that they had suffered any property damage or that any “contingent” property had suffered any property damage. The extra expense provision covered “the necessary extra expense . . . incurred by the Insured in order to continue as nearly as practicable the normal operation of the Insured’s business following damage to or destruction of property of the type covered by this Policy by a peril insured.” The plaintiffs argued that they need not show damage to their own or contingent property. Instead, the plaintiffs argued that the phrase “following damage to or destruction of property of the type covered” provided coverage as long as “buildings,” i.e. a type of property covered under the policy, were damaged or destroyed as a result of the terrorist attacks and that they incurred “extraordinary” expenses. As a result, the plaintiffs based their extra expense claim on the destruction of the World Trade Center complex, the damage to the Pentagon, and the four airplanes destroyed in the terrorist attacks. The trial court agreed with insurers, finding that the extra expense provision required damage to the plaintiffs’ property or, at least, to a “contingent property”, i.e. the property of a supplier or customer, or property that attracted business to the plaintiffs.
The insurers also moved for summary judgment because the plaintiffs could not demonstrate that there was a causal nexus between their claimed system-wide “extraordinary” expenses and any property damage, whether that damage be the destruction of the WTC, the damage of the Pentagon, or otherwise. Here, the plaintiffs argued that they need not show any causal connection to property damage as long as they incurred “extraordinary” expenses “following” property damage. Rejecting the idea of no causal connection to property damage, the trial court stated that the property insurance policies were not intended to insure against changing business conditions or consumer fear, the causes of the plaintiffs’ “extraordinary” expenses.
Finally, the insurers argued that summary judgment was appropriate because the plaintiffs’ bankruptcy costs were not, in fact, “extra expenses”, either by definition or by purpose. The insurers argued that the plaintiffs sought bankruptcy protection because of the weak economy and the significant reduction in travel following 9/11 and that extra expense coverage does not insure a company’s bottom line. In fact, the plaintiffs continued to operate their business for two months before filing for bankruptcy. There were no reported decisions from any jurisdiction directly on point, but the court agreed. In rejecting this argument, the court stated that extra expense coverage does not insure a company’s bottom line, and it does not insure the cost of a bankruptcy resulting from an economic downturn.
The trial court granted summary judgment and disposed of the plaintiffs’ complaint. According to the court, to accept the plaintiffs’ position would essentially convert the policies at issue into strict liability policies even though it is not the intent of the policies to insure the effect that the terrorist attacks had on the economy or tourist industry. The trial court adopted and incorporated the insurers’ statement of facts and arguments in a written opinion. The appellate court affirmed without opinion.
