Aztar owned and operated the Tropicana Casino and Resort ("Tropicana") in Atlantic City, New Jersey. Aztar sought to expand its operations at an adjacent site. The 27 story expansion contained dining, retail and entertainment venues in the lower levels, an eight story parking garage above the lower levels and seven levels of hotel rooms. A walkway and valet bridge connected the expansion to the Tropicana. Tropicana scheduled the opening of the expansion for April 15, 2004.
On October 30, 2003, six floors of the expansion collapsed delaying its opening seven months. As a result of the collapse, New Jersey temporarily shut down the main entry to the Tropicana, a pedestrian bridge, the Tropicana's bus terminal, an existing parking structure and the Tropicana's west hotel tower. The Tropicana did not sustain any direct physical damage from the collapse and remained fully operational aside from the temporary shut down of these facilities.
Following the collapse the Tropicana submitted a claim to its primary and excess insurers for a decrease in patronage that materialized in a $105 million loss. The excess policies incorporated the primary carrier's policy's terms ("Policy") which included business interruption coverage, contingent business interruption, impaired ingress/egress, and business interruption due to a government order that impairs access. Aztar sought coverage under business interruption coverage and contingent business interruption coverage for the decrease in anticipated patronage from new customers who would have visited the Tropicana because of the expansion and the existing patronage that stayed away from the Tropicana due to psychological factors.
The primary carrier accepted the civil authority and ingress/egress claims, but denied the others. The excess carriers denied all claims. Aztar sued the carriers. The primary carrier settled. The trial court granted the excess carriers' summary judgment. Aztar appealed.
The Arizona Court of Appeals affirmed. The primary issue on appeal is whether the Policy's business interruption coverage for "loss resulting directly from necessary interruption of business whether total or partial" "covers Aztar's loss of revenue due to decreased patronage at the casino and hotel following the collapse and subsequent delay of the expansion." The interpretation of this clause is a matter of first impression in Arizona.
The court first looked to interpret the clause "total or partial" and concluded that this language "makes it plain that any stoppage, or hindrance, need not impact the entire 'business' but only a portion." Next, the court analyzed the meaning of the word "business." The court found that this term includes both the "ability to sell one's products" and the "ability to produce products or make available services" and noted that a business can be interrupted regardless of whether the damage occurs to the supply side or the demand side of the business.
Applying these principles to the Tropicana, the court reversed the trial court's conclusion that there was no business interruption because the Tropicana still had the same operational capacity. The court of appeals, however, affirmed the summary judgment ruling on a different theory. "While the clause at issue can be construed broadly enough to include a decreased patronage claim in some circumstances . . . that does not mean that any and all decreased patronage claims are included or that Aztar's is one that is." The nature of the loss must also be considered.
Aztar sought business interruption coverage for a loss caused by a decrease in existing patronage by those who stayed away from the Tropicana due to psychological factors. Aztar argued that the grant of coverage for "loss . . . caused by damage to or destruction of all real or personal property . . ." did not require damage of "covered property." The insurers argued that this provision refers only to property covered under the Policy. The court agreed with the insurers' conclusion "[b]ecause the expansion was not covered property on the date of the collapse, Aztar's claims based on a decrease in existing patronage . . . is not a covered loss."
Aztar also sought contingent business interruption coverage for a decrease in anticipated patronage from new customers. The court found that the decrease in anticipated business from new customers did not cause a covered contingent business interruption loss because the damage was not to "contributing property." The contingent business interruption coverage covers loss resulting from damage to "contributing property of the insured." Aztar argued that the expansion, once complete, would have attracted new customers who would then have patronized the existing hotel. The court rejected this argument. The collapsed structure was not operational at the time it collapsed and, therefore, was not contributing to Tropicana's business. The prospect the property will be complete does not mean that it is contributing property. "If the rule were otherwise, fanciful and speculative announces of future business enhancements used to generate consumer interest could be covered as 'contributing property,' and we do not view the ordinary meaning of the term so broadly." The court of appeals, therefore, affirmed the grant of summary judgment as to this type of loss.
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This opinion is not final. Though it has been certified for publication, it may be modified by reconsideration, or granted review by the Arizona Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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