Zurich American Insurance v. ABM Industries, Inc.
2005 U.S. App. LEXIS 2120, 2005 WL 299700, 397 F.3d 158 (2005)
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Rule of Law:
A service provider has a sufficient insurable interest for business interruption coverage in a property it does not own or lease, if its business is dependent upon and physically integrated with that property to the extent that it 'uses' or 'controls' the property as an essential means of generating income.
Facts:
- ABM Industries Inc. (ABM) was a contractor providing extensive janitorial, lighting, and engineering services at the World Trade Center (WTC) complex.
- ABM operated the heating, ventilating, and air-conditioning (HVAC) systems for the entire WTC, effectively running the physical plant.
- Under its service contracts, ABM had office and storage space, a call center, and effective control over freight elevators and janitorial closets throughout the WTC.
- ABM employed over 800 people at the WTC and its significant presence allowed it to secure service contracts with nearly all of the WTC’s tenants.
- In addition to its WTC operations, ABM had service contracts at 34 other locations in lower Manhattan.
- On September 11, 2001, the WTC complex was completely destroyed in terrorist attacks.
- As a direct result of the WTC's destruction, ABM lost all income it derived from its operations at the complex.
- Following the attacks, orders from civil authorities prevented ABM from accessing its 34 other service locations in lower Manhattan.
Procedural Posture:
- Zurich American Insurance Company (Zurich) filed a declaratory judgment action against ABM Industries Inc. (ABM) in the United States District Court for the Southern District of New York.
- The district court first denied ABM's initial motion for partial summary judgment, finding the policy ambiguous.
- After discovery, both parties filed cross-motions for partial summary judgment.
- The district court granted Zurich's motion, holding that ABM was not entitled to Business Interruption coverage for most of its losses because it did not 'use' or 'control' the WTC common areas and tenant premises in a legally sufficient manner.
- The district court also ruled against ABM on its claims under the Extra Expense, Leader Property, and Civil Authority provisions.
- Final judgment was entered in favor of Zurich.
- ABM, as the appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Second Circuit; Zurich is the appellee.
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Issue:
Does a service contractor that provides extensive, integrated services throughout a property it does not own or lease, but physically 'uses' and 'controls' to conduct its business, have a sufficient insurable interest to qualify for business interruption coverage under a policy covering property 'used' or 'controlled' by the insured?
Opinions:
Majority - Cardamone, J.
Yes. A service contractor has a sufficient insurable interest under these circumstances. The policy covers property that the insured 'used' or 'controlled,' and this language must be interpreted broadly to give meaning to all its terms, not just 'owned' or 'leased.' ABM 'used' the common areas and tenant premises because the existence and configuration of those spaces were the essential means by which ABM derived its income, making them as vital as its own equipment. To hold otherwise would artificially exclude service providers whose business model requires working on others' property. Furthermore, ABM's substantial economic dependence on the WTC's existence satisfies New York's statutory definition of an 'insurable interest,' which is any 'lawful and substantial economic interest in the safety or preservation of property.'
Analysis:
This decision significantly clarifies the scope of 'insurable interest' for business interruption coverage, especially for service-based businesses that are deeply integrated into properties they do not own or lease. It moves the analysis away from a strict requirement of a formal property right (like ownership or a lease) towards a more practical, fact-based inquiry into the economic and operational relationship between the insured's business and the property. This precedent empowers service contractors to secure coverage for business interruption losses tied to a specific location, recognizing that their income is as dependent on the location's existence as a traditional tenant's. Consequently, it requires insurers to evaluate risk based on the insured's functional use and control of a property, not just its legal title to it.
