No Recovery Under Business Interruption Policy For Building Collapse During Construction

In Aztar Corp. v. U.S. Fire Ins. Co., 2010 WL 334549 (Ariz.App. Div. 1), after an expansion to the Atlantic City Tropicana Casino collapsed during construction, the New Jersey government temporarily shut down various impacted structures, including the main entry street to the casino, a pedestrian bridge, the bus terminal, an existing parking structure, and a hotel tower. Although the Tropicana itself did not sustain any physical damage from the collapse and remained fully operational aside from the temporary access closures, the Tropicana experienced a decrease in patronage.

 

Aztar, the hotel owner and operator, submitted claims to its insurance carriers to cover loss from the collapse and interruption of the Tropicana's business. All of the carriers denied business interruption coverage and contingent business interruption coverage. One of the carriers accepted the civil authority and ingress/egress coverage claims, and the others denied these claims as well.

 

Aztar sued the carriers, and Aztar and the excess carriers filed cross-motions for partial summary judgment. The trial court ruled in favor of the excess carriers, determining that “interruption of business, whether total or partial” did not include a loss from decreased patronage at the Tropicana because the Tropicana remained fully operational and was not damaged by the collapse. The trial court also ruled that contingent business interruption coverage was not available because the expansion was not a “contributing property” and the loss from the decreased patronage was not a business interruption. 

 

Aztar appealed, arguing that the trial court erred in denying its cross-motions for summary judgment and in granting summary judgment to the excess insurers. The Arizona Appeals Court affirmed, though on alternative grounds. The court held that the trial court erred in determining as a matter of law that Aztar's claims could not fall within the business interruption coverage provision of the policies because the hotel and casino still had the same operational capacity because the term “interruption of business, whether total or partial” could include a decreased patronage in some circumstances. The court found that the trial court did not err in granting summary judgment to the excess carriers on the issue of contingent business interruption coverage because the expansion was not yet a contributing property to the Tropicana.

 

Editor's Note: The court also found that the trial court erred in finding a factual issue regarding whether the expansion was a covered property on the date of collapse, but agreed with the trial court's determination that the damaged property must be a covered property to trigger the coverage provisions. Reasoning that the language of the policy was clear that the expansion would not become a covered property until April 1, 2004 (the date the expansion was to be endorsed onto the policy and after the collapse occurred), the trial court reversed the trial court's ruling on that issue.