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A national airport retailer is suing its insurer because it refused to pay for financial losses caused by the closure of airports on Sept. 11, 2001. The suit — filed by Atlanta-based Paradies Shops Inc. in Fulton County, Ga. State Court just one day before the second anniversary of the terrorist attacks — alleges that Hartford Fire Insurance Co. breached its contract when it didn’t pay Paradies for financial losses resulting from airport closures in the immediate aftermath of the terrorist attacks. Paradies bases its rights to collect on a “business interruption” policy it purchased from Hartford, according to the complaint. That policy insures Paradies for up to $5 million in lost income in cases when a civil authority closes airports, the complaint states. A $5 MILLION LOOPHOLE Paradies argues in the complaint that when the Federal Aviation Administration banned takeoffs and landings at all U.S. airports from 11 a.m. Sept. 11, 2001, to Sept. 13, 2001, neither employees nor customers could access more than 350 newsstands, gift shops and retail stores in 59 airports nationwide. Paradies’ properties include Brooks Brothers, PGA Tour, The Sharper Image and CNBC News stores in airports. According to its Web site, the company had revenue of $200 million in 2002. The company has grown steadily since 1994, when retired president and co-founder Daniel M. Paradies was convicted of mail and tax fraud and of bribing an Atlanta public official. Paradies should qualify to collect its financial losses under its policy, the complaint says in Paradies v. Hartford. Hartford hadn’t answered the suit by press time, but a spokeswoman confirmed that the company denied Paradies’ Sept. 11 claim. Hartford’s Marnie Goodman explained that generally business interruption clauses only are collectable when physical damage to a property leads to closure. “In lower Manhattan on Sept. 11, there was a civil order that denied access as a result of the physical damage to the World Trade Center. Those, in general, are covered under business interruption insurance,” said Goodman. However, the Sept. 11 attacks “didn’t cause physical damage at any of the nation’s airports,” she said. “Business interruption coverage states that access to the insured properties must be denied by order of civil authority directly due to physical damage to property.” A POTENTIAL FLOODGATE OF SUITS The Paradies case has the potential to open the floodgates for similar suits, said certified public accountant Daniel T. Torpey, an Ernst & Young partner based in Dallas. Torpey handles insurance claims for several clients at or near the World Trade Center site and writes for professional journals extensively on business interruption clauses. “There could be a rush to the courthouse to file these types of claims for people who have these types of endorsements,” he said. Torpey said it’s not clear what the financial impact would be from a stampede to the courthouse. That’s because business interruption clauses are so narrowly tailored to the needs of each client, and many policies don’t have exact or consistent wording. Brokers gear clauses toward the needs of businesses instead of using boilerplate clauses, he said. But winning the case could have unintended consequences, Torpey warned. “It’s not solely a slam-dunk,” he said, because cases could cause premiums to go up on business interruption clauses. “If now these items will be claimable, that will change the marketplace,” said Torpey. For its part, Hartford already has been dealing with similar cases. Spokeswoman Goodman said the insurer has resolved nearly all of the 1,800 claims received related to the Sept. 11 attacks. Hartford is one of more than 20 insurance companies being sued by the development company that controls the leases at the World Trade Center site in New York. In those suits, the developer, Larry A. Silverstein, is using a business interruption clause to pursue the maximum claim per tower from insurers. If successful, he would win $7 billion collectively. However, whether the collapse of the towers is considered two events or one coordinated event is stalling settlement of that litigation, according to news reports. Silverstein claims the attacks constitute two events, and therefore, insurers should pay the maximum claim twice. But insurers don’t agree. They argue the event was “one coordinated attack,” and therefore they should pay only the maximum claim for one event, or $3.5 billion collectively. Three insurers — Hartford, Royal Indemnity and the St. Paul Fire and Marin Insurance Co. — were successful in convincing a federal judge that they should pay only the maximum for one event, according to news reports. Under that decision, which Silverstein has challenged, the companies would owe $112 million for the attack. In the Fulton complaint, Paradies says it specifically asked Hartford for insurance to cover possible airport closures, which is typical of how these clauses are written, said Torpey. The complaint says Paradies recognized “that maintaining shops in airports poses a unique risk of closure” and “raised with Hartford the concern of business interruption and sought against that risk.” Hartford insured Paradies for up to $5 million in business income due to losses resulting from an interruption in business, the complaint states, but now Hartford won’t honor that policy. “The national ground-stop [on Sept. 11, 2001] resulted in the closure of airports and prohibited access to the shops run by Paradies,” the suit says. “Hartford has refused to pay the claim, contending that it is not covered.” Arnall Golden Gregory partner Scott F. Bertschi filed the Paradies complaint. He said the company hasn’t finished its calculations on how much revenue was lost. He said, “It’s not like a car wreck. It’s more difficult to determine the losses.” He also said he thinks this case has a chance. “I wouldn’t have filed it if I didn’t,” Bertschi said. “Obviously, we think it has merit.”

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