The U.S. Court of Appeals, Second Circuit, has ruled that a policyholder need not own or lease a property to be eligible for business interruption coverage. In Zurich American Insurance Co. v. ABM Industries, Inc., No. 04-0445-cv (2d Cir.), the court found in favor of ABM, an engineering and janitorial company that provided extensive services in the World Trade Center.
The Second Circuit reversed summary judgment entered in Zurich's favor by the lower court, and granted ABM summary judgment that its loss of income from destruction of the WTC Complex on Sept. 11, 2001, was covered business income. The District Court for the Southern District of New York had capped ABM's recovery of loss of income at the $10,000,000 sublimit for contingent time element. The appellate court's ruling will permit ABM to argue that it has business income coverage for losses totaling more than $100,000,000.
ABM provided various janitorial, electrical, and engineering services for Silverstein Properties and tenants of the WTC, in the common and tenanted areas. At issue was whether ABM's loss of income from destruction of the buildings was covered as business interruption, loss from property "used" or "controlled" by ABM, or as contingent time element (contingent business interruption), loss from property "not operated" by ABM but, rather, by ABM's customers.
The Second Circuit concluded that ABM had business income coverage for its loss from destruction of the tenanted space and the common areas because "the existence and configuration of the common areas and tenants' 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."
In addition, the Second Circuit reversed the district court's ruling that ABM was not entitled to claim any of the additional costs it incurred to its operations in the wake of the destruction of the WTC. The court also concluded that ABM is entitled to such extra expense coverage regardless of where it incurred those expenses.
The ruling may be the single biggest win for a policyholder seeking compensation for business income losses deriving from the 2001 terrorist attacks, according to John Ellison, of the law firm of Anderson Kill & Olick, who represented ABM. "The ruling also is a huge victory for service-oriented businesses nationwide, as it affirms that companies can have insurable interests in properties they do not own or lease but upon which they may, nonetheless, rely for business income," said Ellison.
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