Indianapolis Airport Authority v. Travelers Property Casualty Co. of America
849 F.3d 355
7th Cir.2017Background
- Indianapolis Airport Authority (IAA) sued Travelers after a 2007 shoring-tower failure on the Midfield Terminal construction project, claiming ~ $12.8M (net) in losses; Travelers paid some amounts and denied the rest.
- Policy at issue was a negotiated commercial builders’ risk/inland marine policy with (1) General Coverage (builders’ risk for direct physical loss), (2) Soft Cost coverage (including bond interest excess of a “budgeted amount” subject to a 90-day deductible), and (3) ERAL (expenses to reduce amount of loss) additional coverage.
- District court granted Travelers summary judgment on broad coverage issues: limited General Coverage to direct physical repair/inspection costs, rejected ERAL and soft-cost recovery; only ~ $2M in inspection costs remained for trial.
- Shortly before trial, Travelers moved to exclude portions of testimony from two hybrid fact/expert witnesses (project owner/manager). The district court limited their testimony and required a damages expert, which IAA did not have, effectively precluding its remaining claim; final judgment entered for Travelers.
- On appeal, the Seventh Circuit affirmed the district court’s narrow construction of General Coverage and that the 90‑day soft-cost deductible barred recovery of bond-interest soft costs, but reversed the ERAL ruling (ERAL may be recoverable if expenses reduced soft-cost liability) and vacated the evidentiary exclusion for reconsideration on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of General Coverage (builders’ risk) | Coverage extends beyond mere repair to consequential costs tied to physical loss | Coverage limited to direct physical loss/damage to covered buildings and restoration costs | General Coverage covers only direct physical damage and costs directly related to restoring property (affirmed) |
| Meaning of Soft-Cost "budgeted amount" | "Budgeted amount" includes planned use of capitalized interest (drawdown); IAA incurred soft cost when forced to use capitalized interest | "Budgeted amount" limited to debt-service schedule amounts; IAA incurred no interest above that | "Budgeted amount" read broadly to include planned capitalized interest usage, so IAA’s drawdown could be a soft cost — but ultimately irrelevant due to deductible (court rejects insurer’s narrow construction) |
| 90‑day Soft-Cost Deductible and Notice/Waiver Defense | Deductible runs from planned opening date; IAA opened early so no soft costs fell outside deductible; IAA substantially complied with proof-of-loss; pre-suit statements declining soft-cost claim were not an effective waiver | Travelers: deductible/dates bar recovery; IAA breached notice/proof requirements and waived soft-cost claim | Deductible measured from planned opening date; because IAA opened before deductible elapsed it incurred no compensable soft costs; IAA substantially complied with proof-of-loss and did not waive the claim (deductible bars recovery) |
| ERAL (expenses to reduce amount of loss) — trigger and interaction with soft-costs | ERAL pays for expenses incurred to reduce soft-cost liability even if soft costs ultimately not paid | ERAL only payable if insured also recovers soft costs; no soft-cost recovery → no ERAL | ERAL may be recovered if (1) expenses were necessary to reduce soft-costs Travelers would otherwise have paid and (2) proven at trial; ERAL is dollar-for-dollar reduction and not conditioned on insurer having paid soft costs (reversed as to ERAL) |
| Exclusion of hybrid witnesses / damages expert requirement | IAA’s hybrid fact/expert witnesses may testify to facts/opinions formed in project roles; no per se requirement for a damages expert | Travelers argued portions of their opinion testimony should be excluded and that Rule 26 required expert reports/damages expert | Exclusion order vacated; hybrids may testify from personal knowledge and may apportion costs if based on project duties; no absolute rule requiring damages expert — remand for reconsideration consistent with opinion |
Key Cases Cited
- Hess v. Board of Trustees of Southern Illinois University, 839 F.3d 668 (7th Cir.) (standard for reviewing cross-motions for summary judgment)
- Frye v. Auto-Owners Ins. Co., 845 F.3d 782 (7th Cir.) (Insurance-policy interpretation follows general contract rules under Indiana law)
- National Fire & Casualty Co. v. West ex rel. Norris, 107 F.3d 531 (7th Cir.) (ambiguous insurance language construed to favor the insured)
- AM General LLC v. Armour, 46 N.E.3d 436 (Ind.) (clear contract language excludes extrinsic evidence)
- Secura Supreme Ins. Co. v. Johnson, 51 N.E.3d 356 (Ind. App.) (insurer should define specialized contract terms if it wants a narrow meaning)
- Griffin v. Foley, 542 F.3d 209 (7th Cir.) (abuse-of-discretion standard for reviewing evidentiary rulings)