## Facts

- United Air Lines bought a $25 million “Property Terrorism & Sabotage” policy from Insurance Company of the State of Pennsylvania (ISOP) covering property damage, lost earnings, and extra expense tied to terrorism.
- The policy’s business-interruption coverage applied to loss “resulting directly” from necessary interruption of business caused by damage to or destruction of United’s insured locations resulting from terrorism.
- The policy also included a civil-authority/access extension providing limited coverage (up to two weeks) for earnings loss when access to insured premises was prohibited by civil authority as a direct result of damage to adjacent premises.
- On September 11, 2001, United’s ticket office at the World Trade Center was destroyed, and ISOP did not dispute coverage for earnings loss attributable to that physical damage.
- United’s facilities at Ronald Reagan Washington National Airport sustained no significant physical damage, but the federal response grounded flights nationwide and the airport remained closed for an extended period, causing substantial alleged lost earnings.
- United sought coverage for business-interruption losses from the Reagan National shutdown and from the broader national disruption of flight service.

## Issues

1. Whether the policy covered United’s lost earnings from the Reagan National shutdown and nationwide flight grounding absent physical damage to United’s insured property at the airport or to “adjacent” property within the policy’s meaning.
2. Whether the policy clause covering “other damage caused by an act of a lawfully constituted authority for the purpose of suppressing or minimizing the consequences” of terrorism expanded coverage to include such shutdown-related lost earnings without a physical-damage trigger.

## Decision

- The Second Circuit affirmed summary judgment for ISOP.
- The court held the policy unambiguously required that covered business-interruption losses result from physical damage to United’s insured property or physical damage to adjacent property as defined by the policy.
- Because United’s Reagan National facilities suffered no significant physical damage and the claimed losses were caused by governmental flight restrictions and airport closure, the losses were not covered.
- The court rejected United’s argument that the “suppression/minimization” language created stand-alone coverage for economic loss caused by governmental response to terrorism.

## Legal Principles

- Business-interruption coverage under a property terrorism policy may be conditioned on a causal link between the interruption and physical damage to insured property.
- Civil-authority/access extensions are limited to the terms stated, including any temporal limits and the requirement that the prohibition of access be a direct result of damage to adjacent premises.
- Contract interpretation turns on the policy’s text read as a whole; language referencing governmental acts to suppress or minimize consequences of terrorism does not, without more, eliminate an explicit physical-damage predicate for business-interruption coverage.
- Where policy language is unambiguous, courts enforce the physical-damage requirement and do not expand coverage based on broad characterizations of the insured event’s overall economic impact.

## Conclusion

The Second Circuit held that United could recover business-interruption losses tied to the physical destruction of its World Trade Center ticket office, but it could not recover lost earnings from the Reagan National shutdown and nationwide flight grounding because those losses did not result from physical damage to insured or adjacent property as required by the policy’s unambiguous terms.


United Air Lines, Inc. v. Ins. Co. of the State of Pa., 439 F.3d 128 (2d Cir. 2006)