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7th Circuit allows Indy airport to proceed with insurance claim

February 20, 2017

The 7th Circuit Court of Appeals is allowing the Indianapolis Airport Authority to move forward with part of an insurance claim stemming from a construction incident at the Midfield Terminal that delayed its opening in 2008.

As the Indianapolis Airport Authority was in the process of constructing the Midfield Terminal in January 2007, two shoring towers that were being used to lift steel trusses failed, causing part of the terminal’s roof structure to drop by about 12 inches and temporarily shutting down construction. As a result, the Airport Authority incurred millions in inspection and repair costs, as well as other ancillary costs.

The terminal construction project was insured by a policy underwritten by Travelers Property Casualty Co. of America. The customized policy included three categories of coverage: builders’ risk, or general coverage; soft costs, including bond interest in excess of the budgeted amount; and expenses to reduce the amount of loss, or ERAL, which was added to cover additional expenses to reduce delay and mitigate soft costs.

Travelers ultimately left the Airport Authority with more than $9 million in non-covered loss, excluding soft costs. The Airport Authority sued, alleging breach of contract and seeking declaratory judgment.

Both parties moved for summary judgment, which Chief Judge Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana granted to Travelers in large part, construing the builders’ risk coverage narrowly and holding that the Airport Authority was not entitled to soft costs or ERAL coverage.  

Then, after Magnus-Stinson restricted the testimony of the Airport Authority’s two hybrid fact/expert witnesses, who were designated to testify on a remaining $2 million claim for inspection costs left for trial under the general coverage provision, the Airport Authority appealed to the 7th Circuit Court of Appeals in Indianapolis Airport Authority v. Travelers Property Casualty Co. of America, 16-2675.

On appeal, the Airport Authority challenged both the summary judgment order and its order on Travelers’ motion to exclude, which led to the restrictions on the hybrid witnesses’ testimony.  But Judge David Hamilton, writing for a unanimous 7th Circuit panel, said in a Friday opinion that the district court was correct in construing the general coverage provision narrowly.

Under the unambiguous language of that provision, Hamilton wrote that the provision covered only accidental loss or damage to physical structures. Economic and other consequential costs, however, would not be covered under the general coverage provision, he wrote.

Further, even though the shoring tower incident delayed the opening of the terminal, thus resulting in additional interest accrual on the bonds used to pay for the project, Hamilton wrote that a 90-day deductible window barred the Airport Authority from recovering soft costs.

The language of the soft costs provision clearly holds that the 90-day deductible period would begin on the “planned completion date,” which was originally scheduled for Sept. 28, 2008, before the shore tower incident, the judge said. The 90-day period, thus, ran until Dec. 27, 2008.

Although the construction manager estimated that the terminal would open on Feb. 22, 2009, which would have allowed the Airport Authority to recover soft costs between Dec. 27 and Feb. 22, Hamilton wrote that the authority did not incur and soft costs in that time period because the Midfield Terminal opened on Nov. 11, 2008.

However, Hamilton also wrote that the Authority may be able to recover the additional costs it incurred in reducing the delay in opening the terminal as ERAL expenses.  The ERAL provision held that Travelers would pay the Authority’s necessary expenses during the “post-loss period of construction” if such expenses would not have been incurred but for a covered loss that delayed completion of the project.

The ERAL provision was not based on whether Travelers paid soft cost claims, Hamilton wrote, but instead was triggered by the Airport Authority’s ability to mitigate Travelers’ soft cost liability. Thus, the Airport Authority is entitled to bring its ERAL claim before a jury, the judge wrote.

Further, the 7th Circuit vacated the district court’s ruling on Travelers’ motion to exclude and instead remand the case for the district court to reconsider its decision. Hamilton wrote that the two hybrid authorities may testify as to the costs related to the incident and inspection services based on their personal knowledge of the incident, and further rejected the notion that the Airport Authority must designate expert testimony on damages.

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