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CITY OF CHICAGO v. FACTORY MUTUAL INSURANCE COMPANY

March 11, 2004.

CITY OF CHICAGO, an Illinois Municipality, Plaintiff,
v.
FACTORY MUTUAL INSURANCE COMPANY, a Rhode Island Corporation, Defendant



The opinion of the court was delivered by: RONALD GUZMAN, District Judge

MEMORANDUM OPINION AND ORDER

Pending is Defendant Factory Mutual Insurance Company's motion for summary judgment and Plaintiff City of Chicago's cross-motion for partial summary judgment on the question of Factory Mutual's contractual liability. For the reasons set forth below, Factory Mutual's motion is granted and the City's cross-motion is denied.

BACKGROUND

  The following facts are undisputed. Defendant Factory Mutual Insurance Company ("Factory Mutual") is a Rhode Island corporation, with its principal place of business in Johnston, Rhode Island. (Pl.'s LR 56.1(b)(3)(A) ¶ 3.) Plaintiff City of Chicago ("the City") is an Illinois municipal corporation, incorporated under the laws of the State of Illinois, with its principal place of business in Cook County, Illinois. (Id. ¶ 4.) At the time when it was still doing business as Allendale Mutual Insurance Company, Factory Mutual issued the City an insurance policy with a period from January 1, 1999 to January 1, 2002. (Id. ¶ 5.) The scheduled locations covered by the policy are Chicago Page 2 O"Hare International Airport ("O'Hare"), Meigs Field, and Chicago Midway Airport ("Midway"). (Id. ¶ 6.) The policy is a standard form policy, which was drafted by Factory Mutual and contains business interruption indemnification provisions. (Def.'s Resp. Pl.'s LR 56.1(b)(3)(B) ¶ 1.)

  On September 11, 2001, at 8:46 a.m. EDT, an airliner struck the World Trade Center Tower 1 in New York City. (Pl.'s LR 56.1(b)(3)(A) ¶ 11.) At approximately 9:02 a.m. EDT, a second airliner struck the World Trade Center Tower 2 in New York City. (Id. ¶ 12.) After these two events, at 9:08 a.m. EDT the FAA banned all takeoffs nationwide for flights going to or through the New York City airspace. (Id. ¶ 14.) At 9:26 a.m. EDT, the FAA banned takeoffs of all civilian aircraft regardless of destination after receiving notification of the suspected hijacking of American Flight 77. (Id. ¶ 15-16.) At 9:40 a.m. EDT, American Flight 77 struck the Pentagon in Arlington, Virginia, and five minutes later the FAA ordered all airborne aircraft to land at the nearest airport as soon as practical. (Id. ¶¶ 17-18.) After United Flight 93 crashed in Stony Creek Township, Pennsylvania at 10:07 a.m. EDT, the FAA issued a Notice to Airmen at 10:39 a.m. EDT that affirmed the earlier FAA order halting takeoffs and landings at all airports. (Id. ¶¶ 19-20.) The FAA's unprecedented ground stop order prevented airplanes from departing or arriving at airports across the United States (including O'Hare, Midway, and Meigs Field), between the dates of September 11-14, 2001. (Id. ¶¶ 26-29.)

  Due to the interruption of business occasioned by the FAA's ground stop, the City suffered significant business income losses. (Id. ¶ 8.) On December 5, 2001, the City advised Factory Mutual of its potential business interruption claims. (Id. ¶ 7.) On March 5, 2002, Factory Mutual denied the City's claim. (Id. ¶ 10.) Page 3

  In response to Factory Mutual's denial, on August 23, 2002, the City filed this action in Cook County, seeking coverage under the policy's Ingress/Egress and Protection and Preservation of Property coverage provisions. (Compl. ¶¶ 29, 39.) Factory Mutual then removed the case to the U.S. District Court for the Northern District of Illinois, Eastern Division. Thereafter, Factory Mutual filed a motion for summary judgment, and the City responded and filed a cross-motion for summary judgment as to Factory Mutual's contractual liability.

  DISCUSSION

  Contract interpretation is particularly suited to disposition by summary judgment. Metalex Corp. v. Uniden Corp. of Am., 863 F.2d 1331, 1333 (7th Cir. 1988). Under Rule 56(c), summary judgment is proper once the moving party has established that no genuine issue of material fact requiring resolution at trial can be found in the record and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In reviewing motions for summary judgment, courts must view the evidence in the light most favorable to the non-moving party, meaning that any doubt as to the existence of genuine issues of fact will be resolved against the moving party. Valley Liquors, Inc. v. Renfield Imps., Ltd., 822 F.2d 656, 659 (7th Cir. 1987). However, a party may not rest upon pleadings to oppose a motion for summary judgment and must set forth specific facts showing that there is a genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of fact is genuine only if a jury could reasonably return a verdict for the non-moving party. Id.

  The parties agree that Illinois law governs this dispute. (Def.'s Resp. Pl.'s LR 56.1(b)(3)(B) ¶ 2.) Under Illinois law, "[a] genuine issue of material fact exists when a Page 4 material provision of a contract contains an ambiguity requiring extrinsic evidence to resolve." Installco. Inc. v. Whiting Corp., 713 N.E.2d 719, 721 (Ill.App. Ct. 1999). "Whether such ambiguity exists is a question of law for the . . . court to decide; if reasonable persons could draw different inferences from the undisputed facts, summary judgment is inappropriate, and the matter should proceed to trial." Id.

  The City is seeking to recover under the "Ingress/Egress" coverage provision or, alternatively, under the "Protection and Preservation of Property" provision contained within the property and business interruption insurance policy it holds with Factory Mutual. (Compl. ¶¶ 29, 39.) The Ingress/Egress provision states:
This policy will cover the Actual Loss Sustained by the Insured due to the necessary interruption of the Insured's business due to prevention of ingress to or egress from the Insured's property, whether or not the premises or property of the Insured shall have been damaged, provided that such interruption must be a result of physical damage of the type insured against and not excluded by this policy, to the kind of property not excluded by this policy.
(Pl.'s Ex. A, Factory Mutual Policy FB 492 ("Factory Mutual Policy") at 14.)

  The crux of the dispute between the parties relates to the business interruption suffered by the City's airports during and after the events of September 11, 2001, and whether the Ingress/Egress provision insures against damages of this type. Factory Mutual argues that the sole cause of the business interruption was the FAA's mandatory ground stop order. However, the City urges consideration of the fact that the FAA's ground stop order was indirectly caused by terrorist-inflicted physical damage to the World Trade Center and the Pentagon. The City's argument hinges on the fact that other provisions in the contract limit insurable business interruptions to those which are caused Page 5 by "direct physical loss or damage." (Factory Mutual Policy at 6.) Therefore, the City maintains that Factory Mutual's failure to include the word "direct" in this specific provision means that the Ingress/Egress provision insures against business interruptions indirectly caused by non-excluded physical damage. However, the City's argument fails because it ignores the fact that the Ingress/Egress provision calls for the damage to be of the type "not excluded by this policy." (Factory Mutual Policy at 14.) An examination of the listed damage exclusions reveals that "indirect or remote loss or damage" is excluded by this policy. (Id. at 29.) Thus, although ingress to and egress from the airport were prevented by the FAA's order and were indirectly caused by terrorist-inflicted damage, this damage is one of the types of damage excluded by this policy in that it was indirect and remote damage inflicted upon the World Trade Center and the Pentagon.

  Although the City urges reliance on the Eastern District of North Carolina case Fountain Powerboat Industries, Inc. v. Reliance Insurance Co., that case is inapposite because it dealt with a prevention of ingress to and egress from the insured's manufacturing facilities that was caused by hurricane-related flooding. 119 F. Supp.2d 552, 554 (E.D.N.C. 2000). The Ingress/Egress clause in that case insured against business interruptions caused by ingress and egress preventions that are the "direct result of a peril not excluded." Id. at 556. The court explained that hurricanes and flooding were not listed as excluded causes of damage and therefore awarded coverage to the insured. Id. at 557. However, the Fountain Powerboat case is distinguishable from the set of facts before this Court because the damage that resulted in the City's ingress/egress business interruption was of the type specifically excluded by Factory Mutual in its policy. Page 6

  Furthermore, the City's argument for coverage under the Ingress/Egress provision fails in light of the final clause, which imposes a territorial limitation. Specifically, the final clause dictates that the prevention of ingress to or egress from the airports must be the result of non-excluded physical damage "to the kind of property not excluded by this policy." (Factory Mutual Policy at 14.) The kind of property covered by the policy includes real property in which the City has an insurable interest, "or within 1,000 feet" of such property. (Id. at 5.) Thus, because the damage that indirectly caused the ingress and egress prevention at the airports did not occur at or within 1,000 feet of the insured properties, the Court holds that the Ingress/Egress provision does not provide coverage for the damage suffered by the City. Although the City has included deposition testimony of Factory Mutual employees speculating on the possible meanings of these clauses, this extrinsic evidence is unnecessary in light of ...


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