Gordon & Rees partners Jacob C. Cohn and Ilan Rosenberg of Philadelphia recently prevailed on an appeal to the U.S. Court of Appeals for the 11th Circuit, winning complete reversal of a $1.9 million jury verdict and attorneys’ fee award against Arch Specialty Insurance Company in a first-party coverage dispute arising from property damage to three apartment complexes caused by Hurricane Wilma in October 2005. The 11th Circuit remanded the case for entry of judgment in favor of Arch Specialty.
Plaintiff Banta Properties managed, but did not own, three Florida apartment complexes, for which it was paid 4 percent of the complexes’ gross income. In April 2005, Banta Properties bought two commercial property insurance policies for the complexes: a General Star Indemnity Co. primary policy that provided $2.5 million of coverage, subject to a $550,000 deductible; and an excess policy issued by Arch Specialty that provided an additional $8.5 million in coverage.
Banta Properties, itself, had only a minor business interruption claim that was reimbursed by the primary insurer. After the primary insurer tendered its limits, Banta Properties asserted a claim against Arch Specialty for damage to the complexes and, unable to resolve the claim, Banta Properties sued Arch in 2010.
The key issue in the case was whether Banta Properties had an insurable interest under Florida’s insurable interest statute, Fla. Stat. § 627.405 in Parkcrest Apartments, one of the three apartment complexes, which had been sold to new owners prior to the hurricane. The new owners concededly were not insured under Arch Specialty’s policy, and Arch Specialty argued that Banta Properties’ insurable interest was limited to its already-reimbursed business interruption claim. Banta Properties, however, argued that its interest in receiving 4 percent of Parkcrest Apartment’s income stream gave it a sufficient insurable interest to recover the cost of repairing the physical damage to the property.
The trial court in the U.S. District Court for the Southern District of Florida permitted the issue to go to the jury, which found Banta Properties had a $5 million insurable interest in the complexes and had suffered $4 million in injury to that insurable interest. After accounting for the primary policy’s limits and deductible, the trial court entered judgment for Banta Properties of approximately $1.2 million and further entered judgment for attorneys’ fees in excess of $700,000.
Cohn argued and persuaded the 11th Circuit to reverse and remand Banta Properties Inc. v. Arch Specialty Insurance Co. for entry of a judgment in client Arch Specialty’s favor. While the court agreed that Banta had an insurable interest, as a non-owner of the properties, the court held that its interest was limited to the value of a potential loss of those rights in the property. The only injury Banta suffered to its insurable interest was $1,600, its 4 percent share of $39,000 in business interruption – a claim paid by the primary insurance policy. Furthermore, the court held, while the original owners of the three complexes were insured under the Arch Specialty policy, the pre-hurricane sale of Parkcrest Apartments divested the prior owner of any insurable interest, and the new owner was never insured under the Arch Specialty policy.
To read the 11th Circuit’s opinion, click here.