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Arthur Andersen LLP v. Federal Insurance Co.

September 30, 2010

ARTHUR ANDERSEN LLP, PLAINTIFF-APPELLANT,
v.
FEDERAL INSURANCE COMPANY, DEFENDANT, AND CERTAIN UNDERWRITERS AT LLOYD'S, LONDON AND CERTAIN LONDON MARKET INSURANCE COMPANIES, DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2809-03.

The opinion of the court was delivered by: Espinosa, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued March 3, 2010

Before Judges Fisher, Sapp-Peterson and Espinosa.

Plaintiff, Arthur Andersen LLP (Andersen), alleged that business losses caused as a result of property damage to the World Trade Center (WTC) and the Pentagon on September 11, 2001 were covered losses under its insurance policy. Andersen appeals from orders that granted summary judgment to the insurer, dismissing its claims. We affirm.

Andersen contends that it earned $204 million less than it expected to earn in the three and one-half months following the terrorist attacks. Andersen did not own or lease any property at the WTC or the Pentagon and cannot identify any supplier or client whose property was damaged to support this claim. Nonetheless, Andersen filed a claim under its all-risk commercial property insurance policy for business losses that it claims it suffered as a result of the property damage to the WTC and the Pentagon, based upon a comparison between expected revenue trends and actual revenue earned. This lawsuit ensued when coverage was denied by Federal Insurance Company (Federal) and Certain Underwriters at Lloyd's and Certain London Market Insurance Companies (London), (collectively, defendant insurers).

Andersen had a three layer program of commercial property insurance covering the period from September 1, 2001 through September 1, 2002. The primary layer of $5 million was purchased from Federal (the Policy). London provided the next $20 million in excess coverage in a "follow-form" policy that followed the terms of the primary Federal policy. The second excess layer of $275 million was provided by Federal as well. The Policy was an all-risk policy that covers all perils unless expressly excluded and there is no contention that any of the specified exclusions applies.

Andersen had a retention of $250,000 for each policy and settled its dispute with Federal as to the primary layer and the second excess layer of coverage, resulting in the dismissal of the claims against Federal in August 2006. It is undisputed that the attachment point for London's coverage was $5,250,000 in losses. See Carpenter Tech. Corp. v. Admiral Ins. Co., 172 N.J. 504, 518, 520 (2002) (settlement with a primary insurer exhausts the primary coverage).

Andersen contends that coverage for its claim is provided by the Contingent Business Interruption (CBI) provision, Clause 9.F(4)(b), and the Interdependency provision, Clause 9.F(6). Both these provisions are within the "Time Element Coverages" (Clause 9.F), which apply when a specified type of loss for a period of time of up to eighteen months is caused by damage to specified property.

The CBI provision gives the insured coverage for the loss of sales or revenue sustained when its business is interrupted as a result of damage to property that disrupts the flow of goods and services with a supplier or customer and states, in pertinent part:

This policy... is extended to cover the actual loss sustained by the Insured resulting from the necessary interruption of the business conducted by the Insured, whether partial or total, caused by loss, damage or destruction covered herein... to:

...

Property that directly or indirectly prevents a supplier of goods, services or information to the Insured from rendering their goods, services, or information or property that directly or indirectly prevents a receiver of goods, services or information from the Insured from accepting or receiving the Insured's goods, services or information. [Clause 9.F(4)(b) (Emphasis added).]

When an insured sustains losses at one insured location as a result of property damage at another insured location, the Interdependency provision provides coverage as follows:

This policy is extended to cover the total loss sustained by the Insured anywhere in the world caused by loss, damage or destruction by any of the perils covered herein during the term of this policy to any real or personal property as described in Clause 9 situated within the Territory covered by this policy. [Clause 9.F(6) (Emphasis added).]

Andersen contends that its claim is covered under the Interdependency provision because the WTC, the Pentagon, and United Airlines Boeing 757 Aircraft (Flight 93) fall within the following definition of Real and Personal Property contained in Clause 9.A(1):

The interest of the Insured in all real and personal property... which is not otherwise excluded and which is owned, used, leased or intended for use by the Insured, or in which the Insured may have an insurable interest, or for which the Insured may be responsible for the insurance.... [(Emphasis added).]

No evidence has been presented that Andersen insured or was responsible for insurance for either site or the airplane. As previously mentioned, Andersen did not own or lease any of this property.

In interrogatory answers, Andersen further stated that its claim of approximately $204 million in lost revenues was "based on a comparison between expected revenue trends and actual revenue earned" and could not be separated to correspond to the damage to the different properties, i.e., the WTC, the Pentagon or the United Airlines airplane. Andersen maintained that its claim was "not based on a client-by-client calculation" but rather, based upon a comparison between expected revenue trends and actual revenue earned (the generalized revenue shortfall). Some of Andersen's proposed witnesses acknowledged that various factors affected its revenues after September 11, including disruption of air traffic, governmental action to reduce the risk of future attacks, the general fear of future attacks, the economic downturn, Andersen's involvement in the Enron scandal and the choice by some potential clients to take their business to Andersen's competitors.

Motion practice was extensive. The orders appealed from are:

1. February 18, 2005 order denying Andersen's motion for partial summary judgment.

In December 2004, Andersen filed a motion for partial summary judgment, seeking declarations "that the insurance policies at issue cover business interruption losses flowing from damage to any real and personal property in which Andersen 'may have an insurable interest' and that Andersen has an insurable interest in the World Trade Center." Defendant insurers filed a cross-motion for partial summary judgment seeking a declaration that Andersen "has no insurable interest in the World Trade Center and is not entitled to coverage under the business interruption provisions of the policies at issue."

The court denied both the motion and cross-motion by order dated February 23, 2005. Andersen appeals from this order, alleging that it was error for the court to ...


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