Phoenix Insurance v. Infogroup, Inc.
147 F. Supp. 3d 815
| S.D. Iowa | 2015Background
- Infogroup (Defendant) relocated its data centers in June 2011 due to threatened Missouri River flooding and submitted a large claim to its insurer, Phoenix (Plaintiff), for relocation and associated expenses.
- Policy at issue (Mar. 22, 2011–Mar. 22, 2012) contains Extra Expense, Preservation of Property, Protection of Property clauses and a Data Endorsement covering electronic data/equipment.
- Phoenix advanced $500,000, then contested broader coverage, arguing Extra Expense requires "direct physical loss or damage." Phoenix sought declaratory relief and restitution of any overpayment; Infogroup counterclaimed for breach and bad faith.
- Disputed facts include whether Infogroup suffered physical loss or loss of use (parking-lot surface water on Aug. 22, 2011; alleged minor equipment damage) and whether such loss caused the move (Infogroup began moving June 1, before alleged physical harms).
- Cross-motions for summary judgment focused on whether threatened flooding or loss of use constitutes the required physical loss to trigger Extra Expense, and which relocation/removal costs are recoverable under Preservation or Protection clauses.
Issues
| Issue | Plaintiff's Argument (Phoenix) | Defendant's Argument (Infogroup) | Held |
|---|---|---|---|
| Whether Extra Expense clause is triggered without "direct physical loss or damage" | Extra Expense unambiguously requires direct physical loss or damage; mere threat or loss of use is insufficient | Loss of use caused by flood risk (and some minor physical harms) triggers Extra Expense | Held: Extra Expense requires "direct physical" loss; loss of use from mere threat does not satisfy it; Infogroup not entitled under Extra Expense |
| Whether Infogroup in fact suffered "direct physical loss or damage" causally linked to relocation expenses | No — any alleged physical damage occurred after Infogroup began relocating, so was not the proximate cause of relocation expenses | Some surface flooding and equipment damages occurred and could satisfy physical loss | Held: Genuine factual dispute exists whether physical damage occurred, but any damage after June 1 cannot be the direct cause of relocation expenses; causation is required and lacking for Extra Expense |
| Scope of Preservation of Property clause — does it cover costs to re-establish operations or purchases of new servers? | Preservation covers only costs to remove covered property, not costs to re-establish business operations | Preservation should cover costs necessary to preserve data, potentially including some equipment and co-location rent | Held: Preservation covers costs necessary to remove Covered Property (including electronic data/equipment); it does not cover costs to re-establish business operations. What costs are "necessary" is a factual question |
| Effect of Protection of Property (duties in event of loss) — do mitigation/protective costs incurred pre-loss qualify? | Duties (and payment) trigger only "in the event of loss or damage"; pre-loss mitigation is not covered by this clause | Protection clause (and general duty to mitigate) supports recovery of mitigation costs (evacuation, berms, build-outs) | Held: Protection clause is triggered only after loss or damage; reasonable steps to protect damaged Covered Property may be covered, but costs incurred before a triggering loss are not recoverable under this clause; factual issues remain as to what steps were reasonable post-loss |
Key Cases Cited
- A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607 (Iowa 1991) (policy interpretation and contra proferentem principles)
- Farm Bureau Life Ins. v. Holmes Murphy, 831 N.W.2d 129 (Iowa 2013) (contract intent and ambiguity rules in insurance contexts)
- United Airlines v. Ins. Co. of the State of Pa., 385 F. Supp. 2d 343 (S.D.N.Y.) (business-interruption coverage requires direct physical damage causally tied to losses)
- Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1 (W. Va. 1998) (loss of use found to be direct physical loss where dwelling became unsafe due to rockfall risk)
- Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co., 400 F.3d 613 (8th Cir. 2005) (rejecting theory that inability to use property alone establishes direct physical damage)
- Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834 (8th Cir. 2006) (interpreting "direct physical loss" to exclude purely nonphysical loss of use)
- Universal Image Prods., Inc. v. Chubb Corp., 703 F. Supp. 2d 705 (E.D. Mich. 2010) (no coverage where insured failed to show tangible structural or other physical damage)
- St. Joseph Light & Power Co. v. Zurich Ins. Co., 698 F.2d 1351 (8th Cir. 1983) (causation requirement: only downtime caused by covered event is recoverable)
- Witcher Constr. Co. v. St. Paul Fire & Marine Ins. Co., 550 N.W.2d 1 (Minn. Ct. App. 1996) (distinguishing insured cause of loss from the required physical loss to trigger coverage)
- Rodda v. Vermeer Mfg., 734 N.W.2d 480 (Iowa 2007) (bad-faith standard: insurer must act without reasonable basis and know it)