October 4, 2010
Written By Attorneys: John M. Clark and Erin Nulty
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In the wake of the terrorist attacks of September 11, 2001, insurers faced an estimated $40 billion in claims from losses, the bulk of which related to the destruction of the World Trade Center ("WTC") and the damage to the Pentagon. Although it has been nine years since the attacks, the ensuing coverage litigation is still winding its way through the court system. Recently, the Appellate Division of the New Jersey Superior Court issued an opinion affirming the dismissal of a $204 million loss of business claim filed by Arthur Andersen LLP ("Andersen"), in Arthur Andersen v. Federal Ins. Co. et al., Docket No. A-2155-08T1.
Even though it did not own or lease any property at the WTC or the Pentagon, Andersen requested coverage under the Contingent Business Interruption ("CBI") and Interdependency provisions of policies issued by its primary and secondary excess carrier, Federal Insurance Company, as well as its excess insurers, Certain Underwriters at Lloyd's, London. The CBI provision provides coverage for loss caused by property damage that prevents the flow of goods or services to or from the insured and necessarily interrupts the insured's business. The Interdependency provision extends coverage to the total loss sustained by the insured anywhere in the world.
Andersen claimed that it suffered business losses in the three and a half months following the attacks as a result of the property damage to the WTC and the Pentagon. It based these losses upon a comparison between expected revenue trends and actual revenue earned. In support of its coverage argument, Andersen took the position that the attacks caused property damage, that there was a resulting economic downturn, and that Andersen's lost revenue thereafter was therefore caused by the September 11th property damage.
Relying on the fact that Anderson could not specifically identify a client that did not receive services due to the property damage at the WTC or Pentagon, the court held that Andersen did not meet the threshold requirements for coverage under the CBI clause. With respect to coverage under the Interdependency provision, since it did not own or rent any property at the WTC or Pentagon, Andersen argued that "insurable interest" should be interpreted to mean any economic interest in the continued existence of the property and to exist "if the loss of the property may cause the insured an economic loss." Noting that such a broad interpretation of "insurable interest" would be impossible to define and not susceptible to a predictable level of risk, the court rejected Andersen's argument.
Interestingly, the trial court's opinion noted that Andersen overlooked the fact that the property damage to the WTC and Pentagon had to be the cause of Andersen's losses in order for the losses to be covered. Instead, the trial court found that Andersen was really arguing that the terroristic event itself, not the property damage, caused the loss. As a result, Andersen could not provide the proof necessary to meet the threshold requirements of coverage under the policies. This case demonstrates that such attenuated arguments for coverage, even in cases dealing with the sensitive events of September 11th, fail when the insured attempts to disregard the reality of its situation and ignores the specific language of the policy.
For additional information regarding this issue, contact John Clark at 856-665-8502 or jclark@nldhlaw.com.
