Business Insurance

Port loses claim for asbestos removal

Issue - May 14, 2001

NEWARK-Asbestos abatement costs are not covered by an all-risks property policy unless an actual asbestos release or an imminent release leaves a property useless or uninhabitable, a federal judge has ruled.

U.S. District Judge John W. Bissell earlier this month threw out the Port Authority of New York & New Jersey's final claims in a longstanding suit against dozens of insurers over coverage of more than $600 million in asbestos abatement costs at the World Trade Center, New York's three major airports and other Port Authority properties.

Granting summary judgment for the insurers in his May 1 ruling, Judge Bissell found among other things that the costs of removing asbestos do not constitute "physical loss or damage" triggering coverage under the Port Authority's all-risk policies.

A Port Authority spokesman said the agency is reviewing the ruling and has not decided whether to appeal.

"We have noted, however, that the judge himself observed that there was no controlling case with respect to the question before the court," the spokesman said.

The ruling ends the trial phase of a decade-long court battle that began when the Port Authority sued its property insurers in 1991 in a New Jersey state court.

The suit sought recovery of the Port Authority's huge expenses of removing asbestos from hundreds of properties ranging from the enormous World Trade Center complex-which represented more than $200 million of the abatement costs-to bridge and tunnel toll booths.

Later moved to the U.S. District Court for New Jersey in Newark, the suit named all of the agency's property insurers from 1969 until 1991. Among them were Affiliated FM Insurance Co., Allianz Insurance Co., units of American International Group Inc., Federal Insurance Co., Hartford Accident & Indemnity Co. and dozens of Lloyd's of London syndicates and London market insurers.

Judge Bissell last year granted summary judgment to insurers on policies issued prior to 1978, finding that the Port Authority breached policy provisions requiring timely notice of its claims.

The ruling removed pre-1978 policies from the case and left only policies in force from 1978 to 1991. In his ruling earlier this month, Judge Bissell found that the agency also has no coverage for its asbestos costs under the second group of policies.

The Port Authority had claimed that its manuscript all-risks property policies cover asbestos abatement costs at hundreds of locations within its facilities, including 780 locations it identified within the World Trade Center and 302 locations at Newark International Airport, according to the ruling.

The agency's claims related to locations that generally fell into three categories, Judge Bissell found. These were numerous locations where the mere presence of asbestos allegedly constituted physical damage under the policies; 801 locations where the risk of asbestos releases constituted damage; and 281 locations where actual releases constituted damage.

After reviewing submissions by both sides, however, Judge Bissell found no evidence that asbestos had posed a health risk to anyone at the Port Authority's properties.

Thousands of air samples taken at the Newark Airport buildings, for example, never revealed any instances of asbestos fibers exceeding safety limits, the judge noted, adding that the Port Authority had completed abatement projects at only a third of the airport locations for which it had claimed losses.

The agency also repeatedly vouched for the safety of its properties, according to the opinion. At one point, the director of the Port Authority's asbestos control program wrote in a memo to employees that "air monitoring tests are conducted to ensure the air quality in specific areas containing asbestos is within the required federal standards. All air monitoring tests taken so far at the (facility) indicate air quality well within federal standards."

Even the February 1993 terrorist bombing at the World Trade Center did not create an asbestos problem: Air sampling that began within hours of the explosion showed some higher-than-normal asbestos readings but none that exceeded levels considered safe under federal guidelines, the ruling notes.

In addition, Judge Bissell concluded that some Port Authority abatement work at the World Trade Center was motivated less by health concerns than by the desire to avert rent revenue losses linked to the presence of asbestos in office space.

"The express purpose of (a Port Authority abatement project) was to stem lost revenue resulting from a loss of new tenants who wished to rebuild office space to their desired specifications but who would not do so unless (asbestos-containing materials) were abated," Judge Bissell found.

Whether insurers are liable for the Port Authority's costs depends on whether "asbestos-related conditions constitute physical damage" under the policies, a question for which the judge found "no controlling case" to serve as precedent.

"To be sure, there are circumstances in which the actual release of asbestos from building materials can constitute physical damage or loss. When this has been the case, however, the courts have described the level of asbestos release...in terms requiring the magnitude...to be relatively substantial," the judge said.

To constitute physical loss or damage, the judge ruled that the Port Authority's claims must involve "an actual release of asbestos fibers...that results in contamination of the property such that its function is nearly eliminated or destroyed, or is rendered useless or uninhabitable" or an imminent threat of an asbestos release of the same magnitude.

None of the agency's claims met this standard, Judge Bissell concluded.

Many of the claims, he noted, arise from the presence of asbestos "unaccompanied by even the suggestion of actual release or imminent threat of release," he wrote.

Out of 103 locations where the Port Authority offered proof of a threatened release of asbestos, the agency had undertaken abatement at only 13, the judge noted, which he said suggests that the Port Authority itself was not treating the threat seriously.

In addition, of 71 locations where the agency offered proof of actual asbestos releases, 45 occurred after the expiration of the last of the property policies at issue, the opinion said.

"Its proofs falling short, plaintiff is left with nothing more than speculative and conclusory allegations," Judge Bissell wrote. "The Port Authority's arguments that its abatement program is necessary for protection of human health misses the point. The issue here is first-party property coverage under the policy that plaintiff has purchased, coverage which plaintiff has failed to establish."

Port Authority of New York & New Jersey et al. vs. Affiliated FM Insurance Co. et al.; U.S. District Court for the District of New Jersey; No. 91-cv-2907.