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PHILADELPHIA PARKING AUTHORITY v. FEDERAL INSURANCE COMPANY

January 14, 2005.

THE PHILADELPHIA PARKING AUTHORITY, Plaintiff,
v.
FEDERAL INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: DEBORAH BATTS, District Judge

OPINION

Plaintiff Philadelphia Parking Authority (the "Parking Authority"), as insured, brings this action against its insurer, Defendant Federal Insurance Company ("Federal"), for breach of contract and bad faith conduct in processing Plaintiff's claim arising under its Property Insurance Policy (the "Insurance Policy") for losses sustained from the Federal Aviation Administration's order grounding all civil aircraft after the terrorist attacks on September 11, 2001.

Defendant has moved to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the Court GRANTS Defendant's Motion to Dismiss in its entirety.

  I. BACKGROUND

  Plaintiff Parking Authority is a Pennsylvania state agency that operates parking garages at the Philadelphia International Airport.*fn1 (Compl. ¶¶ 3, 43.) Defendant Federal, a property and casualty insurance company owned by the Chubb Group, sold Plaintiff a Property Insurance Policy, effective March 31, 2001 through March 31, 2002, which covered various locations in Philadelphia including the airport parking facilities. (Id. ¶¶ 4, 8-10.) The Complaint identifies three specific policy provisions under which Plaintiff seeks to recoup its business losses. (Id. ¶¶ 12, 20, 24.) The first is the Business Income and Extra Expense Provision ("Business Income Provision"), which states:
We will pay for the loss of Business Income and Extra Expense which you incur due to the actual interruption of your operations during the period of indemnity. This actual interruption of your operations must be caused by direct physical loss or damage caused by a covered cause of loss to: A. covered property. . . .
(Compl. at Ex. A (emphasis omitted).) The second is the Contingent Business Provision ("Contingent Business Provision"), which requires Defendant to
 
pay for the loss of Business Income and Extra Expense which you incur due to the actual interruption of your operations during the period of indemnity as a result of direct physical loss or damage caused by a covered cause of loss to property not otherwise excluded at contingent business premises.
(Id. (emphasis omitted).) Finally, the third is the Civil Authority Provision (the "Civil Authority Provision"), providing coverage
 
for the loss of Business Income and Extra Expenses which you incur due [to] the actual interruption of your operations during the period of indemnity when a civil authority prohibits access to your covered property because of direct physical loss or damage caused by a covered cause of loss to property not otherwise excluded in the vicinity of your covered property.
(Id. (emphasis omitted).)

  On September 11, 2001, terrorists hijacked four civil aircraft in the eastern United States. (Compl. ¶ 26.) Hijackers flew one plane into Building One of the World Trade Center in New York City at 8:46 A.M. and a second plane into Building Two at 9:02 A.M. (Id. ¶¶ 27-28.) At 9:06 A.M., the Federal Aviation Administration ("FAA") issued a "First Tier" groundstop, which "banned takeoffs of all flights bound to or through the airspace of New York Center" from airports throughout the northeastern United States. (Id. ¶ 30.) This order, Plaintiff claims, effectively closed the Philadelphia International Airport, which is considered to be part of the New York Center. (Id. ¶ 31.) The FAA then issued a national groundstop at 9:26 A.M., which grounded all flights regardless of destination. (Id. ¶ 33.)

  At 9:40 A.M., hijackers flew a third plane into the Pentagon building near Washington D.C.*fn2 (Id. ¶ 34.) The FAA issued an order at 9:45 a.m. directing all civil aircraft then in flight to land as soon as possible. (Id. ¶ 35.) The fourth plane crashed in Somerset County, Pennsylvania at 10:07 a.m. (Id. ¶ 37.) The FAA reaffirmed its earlier order and issued a Notice to Airmen ("NOTAM") at 10:39 a.m. which halted takeoffs and landings at all airports in the United States. (Id. ¶ 41.) The NOTAM stated:
SPECIAL NOTICE — DUE TO EXTRAORDINARY CIRCUMSTANCES AND FOR REASONS OF SAFETY. ATTENTION ALL AIRCRAFT OPERATORS, BY ORDER OF THE FEDERAL AVATION [sic] COMMAND CENTER, ALL AIRPORTS/AIRDROMES ARE NOT AUTHORIZED FOR LANDING AND TAKEOFF. ALL TRAFFIC INCLUDING AIRBORNE AIRCRAFT ARE ENCOURAGE [sic] TO LAND SHORTLY.
(Pl.'s Mem. of Law at Ex. 2.)*fn3

  Since Plaintiff's garage is part of Philadelphia International Airport and Plaintiff depends on the airport to attract its customers, Plaintiff's business was interrupted as a result of the groundstop. (Id. ¶¶ 44, 48-49.) This interruption caused Plaintiff to lose income, for which Plaintiff submitted a claim under the Insurance Policy to Defendant on December 7, 2001. (Compl. ¶¶ 51-52.)

  By letter dated March 11, 2002, Defendant identified the "relevant sources of coverage" as the Business Income, Contingent Business Premises, and Civil Authority Provisions of the Insurance Policy and denied coverage under all three provisions. (Compl. at Ex. C.) Defendant stated that it was denying coverage under the Business Income and Contingent Business Premises Provisions because no "direct physical loss or damage" had occurred "to the insured premises." (Id.) Defendant further determined that under the Civil Authority Provision Plaintiff "ha[d] not demonstrated that access to its covered property was prohibited by a civil authority," and that
it was not the direct physical loss or damage to the World Trade Center, Pentagon or the airplanes crashing into those structures that caused or resulted in interruption of The Philadelphia Parking Authority operations. Rather it was concern about future terrorist attacks that led to the shutdown of the air transportation system, which does not satisfy this element of coverage.
(Id.)

  Plaintiff wrote to Defendant again on April 11, 2002, restating its claim for coverage under the Policy and disputing Defendant's reasons for denial. (Compl. ¶ 55.) The Parking Authority further added that "as a direct result of the Federal Aviation Authority's . . . ground stop order, the City of Philadelphia Department of Aviation (the `City DOA'), a `second civil authority,' prohibited access to [Plaintiff's] airport parking facilities." (Compl. at Ex. D.)

  On April 30, 2002, Defendant's counsel, Cozen O'Conner ("Cozen"), notified Plaintiff by letter that it would analyze the Insurance Policy and advise Defendant on the matter. (Compl. ¶ 56.) By letter dated May 24, 2002, Cozen reiterated Defendant's denial of coverage. (Id. ¶ 57.) Cozen restated that Defendant was aware of "no physical loss or damage suffered at the Philadelphia Airport . . . or to the parking facilities owned or operated by [Plaintiff]." (Compl. at Ex. F.) With regard to the Civil Authority provision, Cozen stated that, even assuming the City DOA order prohibited access to Plaintiff's covered property, "there is no direct nexus between physical loss or damage and the closure of the airport or the insured's parking facilities." (Id.) In addition to reiterating these two reasons (originally given by Defendant in its March 11, 2002 letter), Cozen further stated that the property damage caused by the plane crashes in New York, Washington D.C., and Western Pennsylvania "was not in the vicinity of" Plaintiff's covered property. (Id.)

  On August 13, 2002, Plaintiff wrote Defendant asking "whether Federal formally adopt[ed] the position taken in the opinion letter [from Cozen], and whether Federal intend[ed] to further change its position about why it [was] denying coverage." (Compl. at Ex. G.) Cozen replied by letter dated September 19, 2002, affirming that the position stated in its May 24th letter was Defendant's response to Plaintiff's claim. (Id. ¶ 62.)

  Plaintiff also sent Defendant a letter on August 14, 2002 requesting access to all documents on which Defendant based its denial of coverage. (Id. ¶ 60.) Defendant has not made its files available for Plaintiff's review. (Id. ¶ 61.)

  Plaintiff filed suit seeking declaratory judgment and damages for breach of contract and Defendant's alleged bad faith conduct. (Id. ¶¶ 67-68, 70-72, 76-78.) Plaintiff claims damages of approximately $10.2 million. (Id. ¶ 71.) Defendant has moved to dismiss pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure. II. DISCUSSION

  A. Standard for Motion to Dismiss

  In deciding a motion to dismiss for failure to state a claim, the Court "must accept the allegations contained therein as true and draw all reasonable inferences therefrom in favor of the plaintiff." Gryl ex rel. Shire Pharms. Group PLC v. Shire Pharms. Group PLC, 298 F.3d 136, 140 (2d Cir. 2002). The Court's task "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Sims v. Artuz, 230 F.3d 14, 20 (2d Cir. 2000) (quoting Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984) (internal quotations omitted)). Thus, the Court should dismiss the complaint for failure to state a claim only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also ICOM Holding, Inc. v. MCI Worldcom, Inc., 238 F.3d 219, 221 (2d Cir. 2001).

  As a threshold matter, Plaintiff claims that Defendant's submission of materials outside the Complaint should convert Defendant's motion to dismiss into one for summary judgment. (Pl.'s Mem. of Law at 7.) Under Rule 12(b) (6) of the Federal Rules of Civil Procedure, where "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Specifically, Plaintiff identifies two documents attached to Defendant's Affidavit of H. Christopher Boehning: 1) excerpts from the Hearing of the National Commission On Terrorist Attacks Upon the United ...


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