INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Court preserves preservation effort
Florida East Coast Holdings Corporation (FECH) ran a Florida railroad and had concerns over the impact of Hurricane Irma, which caused havoc in the state during the summer of 2017. FECH determined that their railroad crossing gates were particularly vulnerable to storm damage. As a loss prevention strategy and to minimize operation disruption, gates were removed from roughly 600 locations and reinstalled after the hurricane’s passage.
FECH presented a claim to Lexington Insurance Company (Lexington), for the cost of its measures. The railroad’s hired accounting firm calculated FECH’s total expense at roughly $5.6 million. Besides the cost of removing, storing and re-installing the gates, their calculation included the added expense of having workers located at each ungated crossing to manage traffic and decreasing the speed of their trains to make the situation safer.
After several years of communication between FECH and Lexington, the claim was rejected. FECH sued Lexington. Later, after the initial court ruled that, due to its interpretation of the insurance policy’s 5% windstorm deductible, Lexington owed no obligation to respond to FECH’s request for reimbursement of loss prevention expenses. FECH then appealed.
Both courts that handled the dispute recognized that their time was best spent analyzing the various portions of the insurance policy that FECH and Lexington referenced in their opposing arguments.
The lower court accepted Lexington’s position that, while coverage applied under the policy, the expense activity at each gate crossing constituted a single event that was subject to the policy’s 5% wind deductible, resulting in a deductible amount that far exceeded the total expense amount FECH sought in reimbursement.
The higher court centered its analysis differently. After considering the coverage parts referenced during litigation, it dismissed consideration of any provision that required direct property damage in order for any coverage to apply. Instead of the policy’s property provisions, the court, instead, considered the preservation of property and certain parts of the time-element language.
As did the trial court, the higher court agreed that FECH’s efforts to avoid hurricane damage and minimize service disruptions could be eligible for coverage. However, it interpreted how deductibles applied quite differently. It determined that the 5% windstorm deductible was appropriate to use when there was direct, storm-related loss. However, the expenses accumulated by FECH were not the result of physical damage.
Since they were due solely to the prevention of loss and minimization of service disruption that was likely to take place if their crossing gates had been damaged, there was no basis for calculating the windstorm deductible. Therefore, FECH’s efforts fell under the policy’s description of Railroad Operations. In that case, the policy requires application of either the 5% of damage deductible or $750,000, whichever is greater.
The higher court ruled to affirm in part (coverage eligibility) and vacate in part (the use of the wind deductible). The case was remanded to the lower court to determine coverage based upon use of the correct deductible.
Florida East Coast Holdings Corporation v. Lexington Insurance Company, d.b.a. American International Group Inc., Aspen Specialty, Houston Casualty, Allied World, Ironshore Specialty, et al.—U.S. Court of Appeals for the Eleventh Circuit—No. 24-11479—May 29, 2026.
