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United Air Lines v. Ins. Co. of the State of Pa.

United States Court of Appeals for the Second Circuit

January 10, 2006, Argued ; February 22, 2006, Decided

Docket No. 05-2144-cv


 [*129]  SACK, Circuit Judge:

On July 14, 2003, the plaintiff,  [**2]  United Air Lines, Inc., ("United") brought suit in the United States District Court for the Southern District of New York seeking a declaratory judgment and recovery in breach of contract under its $ 25 million "Property Terrorism & Sabotage" insurance policy with the defendant, Insurance Company of the State of Pennsylvania ("ISOP"). United sought indemnity for losses it suffered as a result of the September 11, 2001, terrorist attacks on the World Trade Center in New York City and the Pentagon in Arlington, Virginia.

United's ticket office located in the World Trade Center was destroyed. It is undisputed that United can recover from ISOP for any lost earnings that are attributable to this physical damage. Its facilities at Ronald Reagan Washington National Airport (the "Airport"), in Arlington, Virginia, suffered no significant physical damage as a result of the attack on the nearby Pentagon. The issue on this appeal is whether United can nonetheless recover for its lost earnings caused by the national disruption of flight service and the government's temporary shutdown of the Airport. 1 We agree with the district court that, because United cannot show that such lost earnings [**3]  resulted from physical damage to its property or from physical damage to an adjacent property, under the unambiguous language of the insurance policy, the losses are not covered.


The first section of United's "Property Terrorism & Sabotage" insurance policy with ISOP states in pertinent part: "[ISOP] will indemnify [United] for property damage, loss of gross earnings, and extra expense in excess of the Deductible [as later defined] . . . resulting from [terrorism], and any ensuing fire damage, damage from looting, or other damage caused by an act of a lawfully constituted authority for the purpose of suppressing or minimizing the consequences of [an incident of terrorism]." Property Terrorism & Sabotage Insurance [**4]  Policy between ISOP and United, set forth as Exhibit A to Aff. of Jeffrey S. Weinstein dated July 9, 2004 (the "Policy"), § I.A. A subsequent section of the Policy provides that the Policy "insures against loss resulting directly from the necessary interruption of business caused by damage to or destruction of [United's] Insured Locations [which include United's facilities at both the World Trade Center and the Airport] resulting from Terrorism." Id., § III.C.1. The Policy then states that "this section is specifically extended to cover a situation when access to the Insured Locations is prohibited by order of civil authority as a direct result of damage to adjacent premises." Id. 

United seeks a declaratory judgment pursuant to 28 U.S.C. § 2201(a) and an award of damages for breach of contract against ISOP. In this pursuit, it made two principal arguments to the district court to support its position that the cited provisions of the Policy entitle it to compensation for the lost earnings at issue. First, it argued that section I., quoted above, contains within it a free-standing "Suppression Damages Clause," 2 which covers  [*130]  United's lost earnings [**5]  resulting from the terrorist attacks even in the absence of physical damage to its Airport property. Second, United argued that it is entitled to recover for lost earnings arising from the post-attack shutdown of the Airport under the "Civil Authority Clause" contained in section III.C.1. of the Policy because the closure was a direct result of physical damage to the Pentagon, which was on "adjacent premises." ISOP asserts seven counterclaims and seeks a declaratory judgment that it is not obligated to reimburse United for the disputed portion of its lost earnings.

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439 F.3d 128 *; 2006 U.S. App. LEXIS 4169 **

UNITED AIR LINES, INC., Plaintiff-Counter-Defendant-Appellant, - v - INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Defendant-Counterclaimant-Appellee.

Subsequent History: As Amended March 16, 2006. As Amended, March 20, 2006.

Prior History:  [**1]  Appeal from a judgment of the United States District Court for the Southern District of New York (Richard M. Berman, Judge) granting the defendant's motion for summary judgment and denying the plaintiff's cross-motion for summary judgment. The court concluded that the plaintiff's business interruption insurance policy with the defendant did not cover its lost gross earnings attributable to the September 11, 2001 terrorist attacks, other than those that may have resulted from the destruction of its ticket office in the World Trade Center in New York, principally because those other losses were not a direct result of physical damage to either the insured's property at its "insured locations" or any "adjacent premises."

United Airlines, Inc. v. Ins. Co., 385 F. Supp. 2d 343, 2005 U.S. Dist. LEXIS 5485 (S.D.N.Y., 2005)

Disposition: Affirmed.


Airport, physical damage, damages, gross earnings, terrorism, suppressing, adjacent, civil authority, Insured, district court, direct result, lost earnings, indemnify, constituted authority, extra expense, lawfully, business interruption, minimizing, Airlines, flight, losses, adjacent premises, insurance policy, destruction, calculate, coverage, terrorist attack, interruption, shutdown, attacks

Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Appropriateness, Appeals, Summary Judgment Review, Standards of Review, Standards of Review, De Novo Review, Insurance Law, Policy Interpretation, Ambiguous Terms, General Overview, Claim, Contract & Practice Issues, Judicial Review