## Facts

- The Port Authority of New York and New Jersey and PATH owned and operated numerous facilities containing asbestos-containing materials, including major transportation and commercial structures.
- The Port Authority sought reimbursement for asbestos-related abatement costs under first-party “all risks” property policies issued across multiple policy years (1971–1991).
- The Port Authority asserted that the presence, threat of release, and actual release of asbestos fibers constituted covered “physical loss or damage.”
- The insurers denied coverage, contending that asbestos in place, without contamination making property unsafe or unusable, is not “physical loss or damage.”
- It was undisputed that, during the relevant period, asbestos levels in the claimed locations did not exceed applicable governmental safety standards and the properties remained in normal, continuous use.

## Issues

1. Whether the presence of asbestos-containing materials, or a generalized threat of asbestos fiber release, constitutes “physical loss or damage” under first-party “all risks” property policies.

## Decision

- The Third Circuit affirmed summary judgment for the insurers.
- The court held that asbestos in a building is not “physical loss or damage” unless it is present in such condition and quantity that it contaminates the property, rendering it uninhabitable or unusable, or unless there is an imminent threat of such contamination.
- Because the facilities continued to be used for their intended purposes and asbestos levels remained within accepted safety standards, the “physical loss or damage” requirement was not met.

## Legal Principles

- In first-party property insurance, “physical loss or damage” generally requires a distinct, demonstrable, tangible manifestation of injury to property, not mere increased risk or preventive remediation costs.
- The mere presence of asbestos, or the potential for its release, does not constitute covered loss without contamination that materially impairs habitability or functionality, or an imminent threat of such impairment.
- First-party property coverage protects against loss to the insured’s own property and is not a substitute for liability coverage or a general fund for regulatory compliance and routine maintenance.
- Where policy language is negotiated and assisted by counsel, coverage expectations must track the ordinary meaning of “physical loss or damage” and cannot expand the policy into a maintenance contract.

## Conclusion

The court ruled that first-party “all risks” policies did not cover asbestos-abatement costs where buildings remained functional and safe under applicable standards, because “physical loss or damage” requires contamination (or an imminent threat of contamination) that makes property unusable or uninhabitable.


Port Authority of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2002)