Amtrak Takes Sandy Coverage Showdown To 2nd Circ.
By Jeff Sistrunk
Law360, Los Angeles (August 18, 2016, 5:25 PM ET) -- Amtrak will head to the Second Circuit on Friday to challenge U.S. District Judge Jed Rakoff's ruling capping its insurance recovery for more than $1 billion in Superstorm Sandy losses at $125 million, in a case that could impact policyholders' ability to secure coverage for losses tied to the aftermath of major storms, such as salt damage to rail equipment.
Amtrak Can Only Recover $125M For Sandy, 2nd Circ. Told
By Jeff Sistrunk Law360, Los Angeles (February 5, 2016, 4:06 PM ET) -- A slew of excess insurers urged the Second Circuit on Thursday to uphold a New York federal court's ruling that Amtrak can only recover up to $125 million for damage to its tunnels resulting from Hurricane Sandy, contending that the lower court properly determined the entire loss was a single occurrence caused by flood.
Arch Specialty Insurance Co., Lexington Insurance Co. and others told the appellate court that U.S. District Judge Jed Rakoff properly concluded the Sandy storm surge that inundated Amtrak's East River and Hudson River tunnels constituted flooding under the rail giant's insurance policies, thereby subjecting its claim to a $125 million sublimit. The lower court's decision freed the excess insurers from the case.
"Amtrak's position would render meaningless the 'single loss' provision in the policies, which makes clear that the term 'flood' is not limited to flooding caused by rainfall or snow melt," the excess insurers' attorneys wrote in Thursday's brief.
An attorney for Amtrak declined to comment.
The case dates to September 2014, when Amtrak sued more than a dozen insurance companies in New York federal court over $1.1 billion in losses from Sandy, saying the rail company informed the insurers of the losses and submitted more than $270 million in claims. According to Amtrak, it has only received a small portion of that amount.
Amtrak's series of all-risk policies collectively provide up to $675 million in coverage per occurrence, including $125 million for flood losses, according to court papers.
The insurance companies moved for summary judgment in March, asserting that all the damage constitutes a single flood event. In addition, the insurers argued that Amtrak's losses due to salt water inundation cannot be divided into salt damage and water damage, because it's simply saltwater flooding, and damage resulting from the flooding cannot be considered separate occurrences.
Amtrak countered that the salt and water damage were separate and that the salt damage qualifies as ensuing damage, which the insurers are obligated to cover.
Judge Rakoff found in favor of the insurers in June, holding that the inundation of Amtrak's property in Sandy's aftermath fell within the "unambiguous scope" of the definitions of flood in the relevant policies. He further determined that Amtrak did not suffer an ensuing loss in the form of salt damage and that the company's losses arose from a single occurrence as defined by the policies.
Amtrak reached a confidential settlement with its primary insurers in July, setting up an appellate battle in the Second Circuit with the excess carriers.
In a brief filed late last year, Amtrak asserted that Judge Rakoff erred in ruling that storm surge unambiguously qualifies as flood under the policies and that the salt damage to its tunnels isn't ensuing loss. The rail company further argued that the district judge improperly foreclosed its ability to recover for costs to replace undamaged property pursuant to a "demolition and increased cost of construction" provision. Replacement of the tunnels' bench walls and track bed may be necessary to comply with various federal agency requirements, Amtrak said.
The excess insurers countered that Judge Rakoff correctly held as a matter of law that their policies define flood to include storm surge and that salt damage isn't ensuing loss or a separate occurrence.
"Under Amtrak's argument, any loss or damage from flood beyond the initial contact of floodwaters with insured property would avoid the sublimit, thereby eviscerating the terms of the policies," the excess carriers' attorneys wrote.
Even if the flood sublimit didn't apply, Judge Rakoff correctly rejected Amtrak's claim that is entitled to recover the costs of replacing undamaged portions of its tunnels pursuant to the DICC provision, according to the insurers. The rail company presented only speculative evidence that it may be required to comply with a federal law or ordinance mandating the replacement of undamaged property, the carriers contended.
Amtrak is represented by Rhonda D. Orin, Daniel J. Healy and Marshall Gilinsky of Anderson Kill and by Paul M. Smith, Jessica Ring Amunson, Matthew L. Jacobs, Joshua M. Parker and Caroline M. DeCell of Jenner & Block LLP.
The excess carriers are represented by Douglas H. Hallward-Driemeier and Matthew M. Burke of Ropes & Gray LLP and by Constantino P. Suriano of Mound Cotton Wollan & Greengrass LLP.
The case is National Railroad Passenger Corp. v. Aspen Specialty Insurance Co. et al., case number 15-2358, in the U.S. Court of Appeals for the Second Circuit.
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Amtrak Challenges ‘Ensuing Loss,’ ‘Flood Sublimit’ Rulings In Superstorm Sandy Suit
(November 16, 2015, 7:42 AM ET) -- NEW YORK — Amtrak on Nov. 5 asked the Second Circuit U.S. Court of Appeals to reverse a lower federal court’s ruling in favor of insurers that limited Amtrak to no more than $125 million in insurance coverage for its alleged more than $1 billion in estimated Superstorm Sandy damage (National Railroad Passenger Corp. v. Arch Specialty Insurance Co., et al., No. 15-2358, 2nd Cir.).
(Brief available. Document #51-151210-002B.)
On Sept. 17, 2014, National Railroad Passenger Corp. (Amtrak) sued its insurers in the U.S. District Court for the Southern District of New York, seeking a declaration as to the meaning of certain policy provisions and a judicial determination that the insurers breached their contracts in connection with Amtrak's claim for losses stemming from Superstorm Sandy damage.
The defendants moved for summary judgment as to the application of the policies' flood and occurrence provisions and regarding the replacement of benchwalls and track bed.
Single ‘Occurrence’
On June 24, Judge Jed S. Rakoff found that "the inundation of Amtrak's property in the aftermath of Superstorm Sandy falls within the unambiguous scope of the definition of 'flood' in the insurance policies at issue; that Amtrak did not suffer 'ensuing loss'; and that Amtrak's losses arose from a single 'occurrence' as defined by the insurance policies at issue."
The judge further found that "the Demolition and Increased Cost of Construction [DICC] provision in the insurance policies at issue does not provide coverage for the portions of the benchwalls and track bed not damaged by Superstorm Sandy, but the Court makes no finding regarding the extent of the inundation or damage of those structures."
The order dismissed excess insurers Aspen Specialty Insurance Co., Commonwealth Insurance Co., Lexington Insurance Co., Certain Underwriters at Lloyd's and London Market Companies, Maiden Specialty Insurance Co., Partner Reinsurance Europe PLC, Steadfast Insurance Co., Torus Specialty Insurance Co., Westport Insurance Corp. and RSUI Indemnity Co.
On July 2, the judge issued a final order and judgment of dismissal that noted that the parties agreed to dismiss with prejudice the primary insurers, Arch Specialty Insurance Co., Aspen Specialty Insurance Co., Federal Insurance Co., Lexington Insurance Co., Liberty Mutual Fire Insurance Co., Certain Underwriters at Lloyd's of London and Certain London Market Insurance Companies, Maxum Indemnity Co., Navigators Insurance Co. and RSUI Indemnity Co.
‘Ensuing Loss’
Amtrak appealed to the Second Circuit. Amtrak argues that the lower court erroneously held that it failed to demonstrate that the chloride damage in its tunnels constituted an “ensuing loss” under the policies.
“In concluding as a matter of law that the corrosion and chloride damage that commenced after the dewatering of Amtrak’s tunnels did not constitute ‘ensuing loss,’ the court ignored the actual policy language and instead imposed two additional requirements for ‘ensuing loss’ that are found neither in Amtrak’s policy language nor in New York law. Moreover, the ‘ensuing loss’ inquiry is highly fact-intensive, and the court erred by granting summary judgment in light of a record replete with disputed issues of material fact relating to chloride-induced corrosion and whether it constituted ‘ensuing loss,’” Amtrak says.
‘Flood Sublimit’
Amtrak further contends that the District Court improperly found that the policies unambiguously limited all of the damage following Superstorm Sandy to the policies’ $125 million “flood sublimit.”
“Even if the definitions of ‘flood’ in the various policies may be interpreted ‘broad[ly] enough to encompass inundation caused by storm surge,’ SA-23, they may also reasonably be interpreted not to encompass omitted terms such as ‘storm surge.’ Given the resulting ambiguity, the court should have looked to the evidence Amtrak supplied regarding the parties’ underlying intent. That evidence overwhelmingly supports Amtrak’s position. The court erred in granting summary judgment on the basis of one policy interpretation where there was at least one reasonable alternative that would have resulted in coverage. The court likewise erred in granting summary judgment in the presence of genuine issues of material disputed fact as to the parties’ intent,” Amtrak says.
In addition, Amtrak challenges the lower court’s finding that portal-to-portal replacement of the tunnels’ bench walls and track bed was “not required by local ordinances, the FRA [Federal Railroad Administration], or the ADA [Americans with Disabilities Act], and Amtrak is therefore not entitled to coverage for such repairs under the DICC Clause.”
“In doing so, the court improperly rewrote the policy language so as to limit Amtrak’s entitlement to recovery under the DICC Coverage Extension to previously imposed compliance requirements. The court also failed to credit the evidence Amtrak submitted in support of its claim for portal-to-portal replacement of the bench walls and track bed, including evidence that such replacements could be required in order to comply with industry fire and life safety standards enforced under U.S. Department of Transportation and FRA regulations, as well as to comply with the ADA, 42 U.S. Code Section 12147(a); 49 C.F.R. [Code of Federal Regulations] Section 37.43,” Amtrak says.
Rhonda D. Orin, Daniel J. Healy and Marshall Gilinsky of Anderson Kill in Washington, D.C., Paul M. Smith, Jessica Ring Amunson, Matthew L. Jacobs and Joshua M. Parker of Jenner & Block in Washington and Caroline M. DeCell of Jenner & Block in New York represent Amtrak.