On May 10, 2006, in a major victory for policyholders seeking coverage for loss of business income in the wake of disaster, the United States District Court for the Southern District of New York held that ABM Industries Inc., a firm that provided extensive engineering and janitorial services to the World Trade Center prior to 9/11, was entitled to a period of restoration equal to the time it would take to rebuild the WTC on its 'loss of income' insurance claim arising from the attacks of September 11, 2001.  Zurich American Insurance Co. v. ABM Industries, Inc., No. 01 Civ. 11200 (JSR).

The court thus granted in part ABM's motion for summary judgment and denied the motion for partial summary judgment on this issue filed by Zurich American Insurance Company.  The court also denied the parties' cross-motions on ABM's extra expense claim and civil authority claim, concluding that genuine issues of material fact remained for trial on both of those coverages.  ABM is represented by Anderson Kill & Olick, P.C.  Zurich is represented by Stuart Cotton and Philip Silverberg of Mound Cotton Wollan & Greengrass, and Mary Borja of Wiley Rein & Fielding. ABM provided various janitorial, electrical and engineering services for Silverstein (the WTC landlord) and tenants of the WTC, in the common and tenanted areas, respectively.  The WTC was one of several buildings in New York City in which it provided such services to the landlord, as well as services to the building's tenants. At issue in the decision was whether ABM's loss of income from  destruction of the WTC was limited to the time it would take ABM's tenant-customers to relocate to replacement premises, or the time it would take the WTC to be rebuilt.  Specifically, Zurich had argued that, because ABM's loss was limited to "its future income stream" at the WTC, and because its income derived solely from the money it made servicing the WTC's tenants, ABM's loss should be bounded by a period of restoration equal to the time it would take for the WTC's tenants to relocate, which Zurich estimated would be just over three months.  In contrast, ABM argued that its loss could not be parceled out in that way and, therefore, the appropriate period of restoration had to equal the time it would take to rebuild the WTC. Previously, the United States Court of Appeals for the Second Circuit had held that ABM's claim was one for business income, rather than merely for contingent business income, which had a sublimit of $10,000,000 in the insurance policy sold by Zurich.   397 F.3d 158, 164, 170-71.  At issue was whether ABM's loss of income from destruction of the WTC was covered as Business Income - loss from property "used" or "controlled" by ABM - or as Contingent Time Element (Contingent Business Income) - loss from property "not operated" by ABM but rather by ABM's customers.  In supporting the Business Income claim, the District Court noted that the Second Circuit had ruled that ABM had an insurable interest in not only "the spaces occupied by the tenants, but also, inter alia, . . . the public common areas."  Slip op. at 4.The District Court thus concluded that the ABM case was different from that of the policyholders in Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384 (2d Cir. 2005), and Streamline Capital, L.L.C. v. Hartford Casualty Insurance Co., No. 02 Civ. 8123, 2003 U.S. Dist. LEXIS 14677(S.D.N.Y. Aug. 25, 2003), both of which held that the period of restoration for those policyholders' business income claims was the time it would take those policyholders to relocate to replacement premises, rather than the much longer time that it would take to rebuild the WTC, because those "courts concluded that the insured property was the plaintiffs' personal property at the [WTC]."  Slip op. at 5.  The court held that "the nature of ABM's business is fundamentally different from that of either of the plaintiffs in those cases.  Unlike Duane Reade and Streamline Capital, ABM cannot simply relocate to another building and carry on its business.  To the contrary, ABM's business was, as the Court of Appeals recognized, fundamentally connected to its use of the common space as the [WTC]."  Id.  The court further held that, "in contrast to the position of Duane Reade and Streamline Capital, restoration of the [WTC] itself is 'necessary [for] ABM to resume' its operations."  Id.The court further distinguished Duane Reade and Streamline because those decisions were based, in part, on those courts not wanting to tie the period or restoration to a process over which neither the policyholders nor insurance companies in those cases had any control - the rebuilding of WTC.  For ABM, however, "the nature of [its] business is such that it is impossible to tie the recovery period to a process over which the parties have control." Id.  As the court put it, "under Zurich's theory, if all of the WTC tenants immediately relocated to other buildings that ABM did not service, ABM's business would remain interrupted, but it would be unable to recover damages under the Business Interruption provision of the Policy, a result the parties could hardly have intended."  Id. at 5-6.  The court rejected that unreasonable construction of the policy.The court reserved for trial exactly how long it would take to rebuild the WTC, and whether ABM could recover throughout that period.  Further, the court held that questions of fact remained on ABM's claims for extra expense and civil authority coverage.

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Carol A. UeckermanCommunications/Marketing Managercueckerman@andersonkill.com(212) 278-1339To read the decision, please click here.