Florida East Coast Holdings Corporation v. Lexington Insurance Company

The Eleventh Circuit vacated a summary judgment ruling that denied an insurance claim for hurricane-prevention expenses. The court held that while the policy covered the costs of removing and reinstalling railroad gates, the applicable deductible was fixed at seven hundred fifty thousand dollars rather than a percentage of total property value.

Background

Florida East Coast Holdings Corporation insured its railroad operations against property damage. In anticipation of Hurricane Irma, the company removed crossing gates from approximately six hundred locations to prevent damage and stored them, resulting in operational delays and expenses. After the storm passed, the company sought coverage for these prevention costs and lost revenue. The insurers denied the claim, arguing the expenses fell below the applicable deductible. The district court granted summary judgment to the insurers, calculating the deductible as five percent of the total property value of all affected locations, which exceeded the claimed losses.

The court’s reasoning

The Eleventh Circuit applied Florida law to interpret the insurance contract. The court agreed with the district court that the Protection and Preservation of Property provisions in Sections B and C of the policy covered the expenses for removing and reinstalling gates to prevent impending physical loss. However, the court rejected the appellant’s argument that the Expenses to Reduce Loss provisions applied, noting that the plain language of those clauses requires an actual loss to be reduced, not a risk of loss. Regarding the deductible, the court found the policy language required calculating five percent of property values at locations damaged by the windstorm. Since no locations were damaged, the five percent calculation yielded zero. Consequently, the minimum deductible of seven hundred fifty thousand dollars applied. Because the claimed losses exceeded this amount, summary judgment was inappropriate.

What it means going forward

The decision clarifies that preventative measures taken to avoid physical damage are covered under protection clauses but not under clauses requiring the reduction of an existing loss. It also establishes that named windstorm deductibles based on damaged property values default to the minimum fixed amount when no property is actually damaged.

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