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Zurich American Insurance Co. v.
ABM Industries, Inc.

A Significant Victory for Policyholders Nationwide Seeking Insurance Coverage for Loss of Business Income and Other First-Party Exposures

By John N. Ellison, Richard P. Lewis, and Nicholas M. Insua

In an important victory for policyholders nationwide, on February 9, 2005, the United States Court of Appeals for the Second Circuit ruled in favor of ABM Industries, Inc., providing virtually a complete victory in Zurich American Insurance Co. v. ABM Industries, Inc., No. 04-0445-cv, 2005 WL 299700 (2d Cir.). Reversing the District Court’s grant of summary judgment in Zurich’s favor, which had capped ABM’s recovery of loss of income at the $10,000,000 sublimit for Contingent Time Element coverage, the Second Circuit granted summary judgment to ABM, permitting ABM to recover Business Income coverage for losses it claims total more than $100,000,000, subject only to the policy’s blanket $127,000,000 coverage limit. ABM was represented in the Second Circuit by John N. Ellison and Richard P. Lewis of Anderson Kill & Olick, P.C.

ABM provided various janitorial, electrical, and engineering services for Silverstein and tenants of the WTC, in the common and tenanted areas, respectively. At issue in the case was whether ABM’s loss of income from the destruction of the WTC was covered as Business Interruption—loss from property “used” or “controlled” by ABM—or as Contingent Time Element (Contingent Business Income)—loss from property “not operated” by ABM, but by ABM’s customers. The District Court had concluded that ABM neither “used” nor “controlled” the common or tenanted areas of the WTC, and therefore did not have Business Income coverage for loss of profits from their destruction. For parts of the WTC that the District Court found that ABM did control—its offices, warehouse space, janitorial closets, and freight elevators—it held that ABM’s loss of income was not caused by the destruction of that property, but by the destruction of ABM’s customers’ property at the WTC. Thus, the District Court concluded that ABM was entitled only to $10,000,000 in Contingent Business Income coverage.

In reversing, the Second Circuit concluded that ABM has Business Income coverage for its loss from destruction of the WTC’s tenanted space and common areas because “the existence and configuration of [such] premises were vital to the execution of ABM’s business purpose,” and “were the means by which ABM derived its income and were as essential to that function as ABM’s cleaning tools.” The Court further concluded that policyholders such as ABM may make Business Income claims for loss of profits for damage to property in which they have an Insurable Interest—a very broad doctrine under New York law—as long as the policy language allows such claims (which ABM’s policy did and many property policies do). Accordingly, ABM is entitled to claim its loss of profits from the operations it conducted at the WTC as Business Income, coverage which has no sublimit in its policy.

The Second Circuit reversed as well the District Court’s holding that ABM was not entitled to claim any of the additional costs it incurred in the wake of the destruction of the WTC. The Court concluded that ABM is entitled to such “Extra Expense” coverage regardless of where it incurred those expenses. ABM must simply demonstrate that the Extra Expenses “resulted from” the destruction of the WTC. The Court also reversed the District Court concerning ABM’s right to recover its losses from its inability to service other downtown premises under the Civil Authority provision in the policy.

ABM may be the single largest win for a policyholder seeking compensation for its 9/11-related Business Income losses, and is certainly one of the biggest dollar, and most broadly-worded, Business Income judgments ever. Although the decision deals factually with losses arising from the events of September 11, 2001, at the WTC and elsewhere, it has much broader ramifications for Business Income losses of all varieties. The insurance coverage issues addressed by the Second Circuit surprisingly have not been treated by many courts. ABM thus functions as an important reference point in future disputes about coverage for loss of Business Income. All policyholders should look to ABM as a very helpful precedent supporting their pursuit of insurance coverage for losses of Business Income.

ABOUT THE AUTHORS

John N. Ellison is the Managing Shareholder of the Philadelphia office of Anderson Kill & Olick, P.C. Mr. Ellison’s practice consists exclusively of advancing policyholders’ rights and efforts to maximize their insurance coverage. Mr. Ellison can be reached at jellison@andersonkill.com or 215-568-4710.

Richard P. Lewis is a Shareholder and Nicholas M. Insua is an attorney in the New York office of Anderson Kill & Olick, P.C. Messrs. Lewis and Insua regularly represent policyholders in disputes with their insurance companies. Mr. Lewis can be reached at rlewis@andersonkill.com or 212-278-1822 and Mr. Insua can be reached at ninsua@andersonkill.com or 212-278-1299. Anderson Kill & Olick, P.C. is a national law firm with offices in New York City, NY, Philadelphia, PA, Chicago, IL, Newark, NJ, Washington, D.C., and Greenwich, CT that regularly represents policyholders in insurance matters.

This article originally appeared in the February 2005 issue of AKO Policyholder Alert, a publication of Anderson Kill & Olick, P.C. Reprinted with permission.

riskVue | The webzine for risk management professionals
April 2005