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Courts Favor Insurers in Airport Cases Seeking Civil Authority Coverage After 9/11
On the morning of 9/11, the Federal Aviation Administration reacted to the unfolding national disaster by issuing a 'ground stop order' of all aircraft departures regardless of destination. This ground stop order was lifted on Sept. 14, 2001. Due to the events of 9/11, numerous policyholders sought coverage under first-party property policies for coverage of their business interruption losses related to operations at the country's airports. The policyholders claimed that the ground stop order or other governmental orders closed the airports and gave rise to coverage under their policies' Civil Authority provision. Based on varying policy language, insurers resisted these claims on several grounds, including that 1) the ground stop order did not bar access to the airports, 2) the ground stop order was not issued due to property damage, and 3) the ground stop order was not issued due to damage to the insured's property or to adjacent property.
To date, the majority of courts deciding these claims have ruled in favor of the insurers. The most recent decision upholding summary judgment for an insurer is United Air Lines, Inc., v. Insurance Company of the State of Pennsylvania, 439 F.3d 128 (2d Cir. 2006), decided by the Second Circuit on Feb. 22, 2006. The Second Circuit rejected United Air Lines' claim for civil authority coverage on the basis that the ground stop order and another order closing Reagan Washington National Airport were issued 'based on fears of future attacks,' not as a result of property damage at the Pentagon. 439 F.3d at 134. In doing so, the Second Circuit joined a circle of courts deciding similar claims related to airports in Chicago, Philadelphia, and, in one case, across the nation. See City of Chicago v. Factory Mutual Ins. Co., Civil Action No. 02-C-7023, 2004 WL 549447 (N.D. Ill. Mar. 18, 2004); The Philadelphia Parking Authority v. Federal Ins. Co., Civ. Action No. 03-Civ-6748 (DAB), slip op. (S.D.N.Y. Jan. 14, 2005); The Paradies Shops, Inc. v. Hartford Fire Ins. Co, Civil Action No. 1:03-CV-3154 (JEC), slip op. (N.D. Ga. Dec. 15, 2004).
In the minority is a decision rendered after a bench trial in US Airways, Inc. v. Commonwealth Insurance Co., Civil Action No. 03-587, 2004 WL 1637139 (Virginia Cir. Ct. July 23, 2004). The Virginia state court agreed that Reagan Airport was closed 'out of fear of being a target for further terrorist attacks,' but concluded that the policy covered civil authority closure orders issued due to the 'risk of damage' to an insured's property. 2004 WL 1637139 at *5. The cases cited above reject the position that orders issued to prevent future damage are a sufficient trigger for civil authority coverage. The US Airways decision was reversed on appeal, but the Virginia Supreme Court ruled for the insurer on other grounds and did not reach the civil authority issue.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
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