we made it here before the snow starts we're very pleased to have with us our very distinguished an able colleague visiting us from the united states district court northern district of illinois judge edward chang joining our panel good morning a plea for my name's rebecca siemens rice miller lp representing the indianapolis airport authority in this insurance coverage dispute against travelers property casualty company of america airport appeals the district court summary judgment order regarding the interpretation of three coverage provisions in the insurance policy that was issued by travelers the policy applies to a partial collapse that occurred during construction of the new midfield terminal project in indianapolis the construction work had to be suspended immediately in order to investigate inspect and repair the structure as a result there was a significant delay in the project which the airport was able to mitigate by incurring costs to receipt once and accelerate the work the airport requests reversal of the district court summary judgment ruling that the policy does not cover an reimbursed construction costs that were incurred because of the incident and also the ruling that the policy does not cover the airport soft cost claim for the bond interests during the period of delay in completion of the let me ask you this because i'm concerned about this risk of direct physical loss how is risk of the direct physical lost an ambiguous or the term risks could reasonably be interpreted to mean both physical and economic risk context in the in the phrase risks of direct physical laws which we believe is much broader then it necessarily is broader than only direct physical law and let me ask you one other question what is your best argument for why the general coverage provision covers the loss you suffered as a result of delay in construction well your honor the the general coverage provision doesn't include damages that result from delay except to the extent that it the general coverage provision there is an exclusion for delay there for delay cost to recognize that but there is also a specific provision of the expense to reduce the amount of loss provision which says that for expenses that are incurred necessarily in order to mitigate against the delay and also be under the general coverage provision we're not seeking damages that are caused by the delay we are seeking damages that were what categories of costs are in dispute here and there are approximately miles certainly i'd be happy to your honor at this point there are at the airport has approximately nine point three million dollars of total construction cost construction costs of that approximately four million dollars is for costs that were incurred due to investigation and inspection of the structure following the end that were not reimbursed they have not been reimbursed there's bachelor disputes as to whether or not those costs were incurred because of the incident there are approximately again of the nine point two million there are approximately four point two million dollars of construction costs that were incurred in  maybe i'm missing things but so that that makes the total amount of the airport's claim that is before the court proximately sixteen point seven million you now the i'll start with the ex with the expenses to reduce the amount of loss provision that was a provision that didn't garner very much attention on the district court's order but actually applies to exactly the facts that happened here that provides that in the event that there is a delay and the airport incurs expenses in order to reduce the delay that the airport would be able to recoup those expenses but only to the extent that it is no more than the amount of the soft costs that were avoided before that and it's important to to look at the financing of the structure of this particular project unlike a lot of construction projects where there is just a loan a construction loan that's obtained only for the amount that will be required to complete the project here this project was financed using the issuance of municipal bonds that were in excess of what would be needed to construct the project it was to finance the entire tire capital improvement program for the airport the airport in travelers had conversations and discussed extensively the fact that that's how this project was going to be financed and at the airports request soft costs was broadened to include bond interest but before that addition to the policy and already under the deaf mission of soft costs are the type of soft costs that are covered there's already a provision that says that interest on money that is used to finance construction is a soft cost this is in addition to that it was an added term bond interest will be a soft cost under this policy and then the conversations and discussions between airport between the airport and travelers before the policy was issued specifically talked about what kind of expenses and what kind of bond interest would be implicated if there is a delay they discussed an eighteen month delay and talked about the fact that would result in sixty million dollars of bond interest travelers underwriters analyze a hypothetical situation before the policy was issued in which there would be a five month delay and concluded that there would be thirteen and a half million dollars in bond interest that's a very similar to the delay that actually occurred on this interest would be on those umbrella bonds if you will the airport planned and this is reflected in the general ordinances that were part of the bond documents that were attached as exhibits to the summary judgment motion ordinances specifically contemplate that during the period of construction the interest on the bonds would be satisfied by bond proceeds now after the construction of the project because there would be operations those bond interest payments  satisfied using revenues from the project the plan was that we're going to utilize again the bond proceeds own through the period instructs that you open up your line start paying rent correct and you can pay the interest for that absolutely and i was delayed by  question of soft costs you seem to want to use the original projected dates of either substantial completion or actual opening and a hypothetical projected opening date in february of two thousand and nine at the airport beat by what three months right interact given the language  you get to the right page of the index was in the definition sections and particularly the definitions for period of delay in completion yes in planned completion date i don't understand why the substantial completion date is even relevant here nor do i understand why we shouldn't focus on the actual opening day thank you ira well if i could refer the court to page twenty five of our brief opening this might be an easy way i'll agree with you that well i will submit that these definitions are somewhat confusing and need to be somewhat broken down but from the perspective of the airport it really doesn't matter whether or not you use completion date as substantial completion or opening day but our position but our position is that is it needs to be one when you're measuring the period of delaying completion and you have a start even and then day for a period you need to either use what was the come substantial completion and the ending date being substantial completion or the beginning date being what was the planned opening day and had the ending date be an opening date date well but nobody apparently we're not connecting because if i understand correctly the original planned opening september twentieth twenty correct actual opening nov eleventh correct why isn't that the relevant time period initially or on or the airport believe that that's what was the relevant time period and that's the and that specifically explains why it was not included in a soft cost a specific soft cost claim was not included in the proof of what but when you really break down the definition what the definition for period  completion says that it will and on the date when the project should be opened using reasonable speed and similar materials and equipment so it is the theory of the airport authority that november eleventh was achieved by unreasonable for period you're getting ready to understand seems very strange understood your honor and from the from our perspective we didn't draft the policy that's the definition that's put in the policy by the by travelers and they informed us as reflected in the br but i can't answer the question it on why the policy does not say that the period of delay in completion will and on the date the project is completed but it doesn't the policy says it will end on the date using reasonable speed and and similar materials and workmanship importantly the date of november eleventh is not the date that would the project would be opened using similar materials and equipment the airport had to expend costs in order to get to that so this goes costs are in your point they aren't that's correct right and let me make sure i understand the relationship between the e r ill provision and the soft cost if it's your argument that the are a bill provision is not dependent upon the existence of  submission of factual information regarding the bond interest the key elements for any arielle claim include explaining why and how much of the soft costs would have been incurred during that period that was avoided so in other words  g the proof of lies the airport provided information regarding the bond interest the daily calculation of bond interest that would be incurred and also the delay that was incurred and the delay that was avoided by virtue of the efforts that were undertaken it's our position that the airport was not required to identify every single theory of recovery and it's proof of loss the proof of loss provision does not require that in the law does not require that what it requires is the provision of information regarding the facts of the loss and information regarding the damages and that information was provided and it all turns on the issue of how much beyond interest it's a very significant significant cost obviously one hundred thirty five thousand dollars every single day that the airports require to to carry that interest payment in a way that had not been contemplated but that's the tie between the two of them and why it travelers position is true that you must have a soft cost really true under the insurance company's theory the way the right oh she works there's m p l insurance lor require either side to in this sort of a dispute to identify definitively in its legal theories  before the litigation begins no your honor in fact we think the case law is very clear and cited in our brief that privilege a geisha and statements are not considered binding admissions on either side i believe that's probably accurate yes but the problem is we were not the to the airport was not advised to early on in the process bond interest was an issue from the very beginning right after the incident happened there was a discussion and there was a sharing of information regarding the bond interest travelers did not tell the airport you can't have any arielle claim unless you go out and issue a bunch of new bonds and have all new a whole new bond series so that you'll have interest the actually qualify as a costly so we raise that issue in the context of a defense when travelers the saying that somehow the airport waived its right to a soft cost claim by not specifically providing theory in the proof of last and again conditions proceeding r g p strictly construed against the insurance company and it's that if you look at that provision in the policy it does not say that if you fail to include it in the proof of loss somehow you waive the client in fact to the contrary the pro loss form that was provided by travelers that the airport submitted says on its face that additional information may be provided and will be considered as a supplement to the proof was you know you're in your rebuttal time you're free to use it but i just want to make you  understood thank you your honor i'll say just i'm a word or two about the general coverage provision we talked about touched on it briefly i just wanted to highlight the fact that the policy does not use the phrase direct repair cost which is a pit which is a phrase that travel uses throughout its brief and that phrase does not appear although the word repair peers throughout the policy in different contexts it doesn't simply in straightforwardly advise the insured that the only thing you're able to recover into the general coverage provision is director projection that was prepared by the construction manager and was provided to travelers at the time it was an estimate if we continue on doing what we had normally planned to do with our normal course of construction when do we anticipate the airports going to be open in that date of morning honors i think it's important to start off my argument because we've been around these different coverage provisions but i think it's important to go back to understand the structure of this policy and the different provisions because indiana law follows the rules of construction that you've got to read the document as a whole you've got to harmonize all provisions you have to read all the phrases and you have to give them all a fact and this is a manuscript issue forms but this is a specific policy written by travelers that had different modifiers and provisions that could be put in or taken out depending on  situation now this builder's risk policy and your honor asked the question early on to the seaman's about the general coverage provision and the risks of direct physical loss so we've got to start there because that's the insuring agreement that tells us what is covered by this policy and if you look at the language we will pay for last meeting accidental loss or damage to covered property which is defined as builders risk which is the buildings under construction from any of the covered causes of loss risks of direct physical loss the only accidental loss or damage that could occur to the buildings under construction is physical damage and that's what all the case law sets the one place case the case the vision case ocean child all those cases that talk about that specific provision says we only cover the actual physical to the building and it makes sense when you go further in the policy because the new very next coverage underneath that is soft costs soft cost is an economic cost if the general coverage provision  provided coverage for economic costs as i suggest there be no reason to have a soft prosperous nation and then going further if you look at the additional coverage is underneath that those are various other economic costs expediting costs are a l that we talked about those are none of those are physical damage types of costs and that's why the policy is structured in this way so when the district court determined that the general coverage provision was limited to paying for the direct physical damage caused by the shoring tower incident no i meant not everything in the world to the buildings under construction that exactly followed the language of the policy and the cases that head interpreted that provision beforehand so the the big rub in this case obviously is their attempt to seek recovery for these soft costs seven million dollars and then separately another five million dollars or so of what they call additional costs of additional construction and other types of economic costs which aren't covered under this general coverage provision so you have to see all right is there a place in this policy that provides coverage for that well let's talk about soft costs for a minute and they want to get away from the language of the soft cos we have the the we will pay for soft during the period of delaying completion but you can't end analysis of the soft parts provision right there you've got to look at the definition of the term soft cuts which is a defined term in this policy so if you turn to docket two twenty two dash three the soft  page thirteen or fourteen of the policy which is a definition page you know you see paragraph twenty four which is the soft cost definition and the soft cost definition says soft cost means your actual and necessary business costs in excess of your budget amount for the project consisting only of the type shown in the declaration there's only four types in this policy shown in the declaration and those are  the four that are listed on the declaration page interest on money borrowed to finance construction advertising expenses costs resulting from renegotiation of leases and bond interest and penalties for the purposes of this case the only soft cost at issue in this case is bond interest that's been admitted in the lower court in the briefing and so then you have to look at all right what what they want to recover as a soft cost is their ordinary bond interest between the two dates that never changed it is that if i may interrupt is there something in the policy to declarations it so that tells us what is the budget amount in a dollar since there is nothing in the declaration it says the budget amount in a dollar sense in that one that would make sense in a policy like this because you know every every project is different i thought you but you said it was a manuscript policy so you could have inserted something like the debt services schedule for example i've never seen a policy that had a debt service schedule i attached to it but in the case of this case the budget i consisting only of the types in the declaration is the budgeted amount for the bond interest which is the debt service schedule that they provided in fact in their briefs on summary judgment their argument was hey that term budget because we've got an insurance policy specific to the project the midfield terminal and bonds intended to cover a number of other capital projects as well and certainly the airport authority was worse that there was never any change to the bond interest they never separate and i don't understand then everybody there but they did not have income available to pay the interest because of the change in the damage to this project well could i ask you i know you want to talk about the interest but i really like to hear you talk about you are a church where your position and the district judges analysis seem to create some very strange incentives for the insurer well all right so so to understand understand here all you've got to go to that provision in the policy which you will find at page five of fourteen  but the most important part of this particular provision is the very last sentence of it which said no deductible applies to lucy did you not know that i'm sorry the sentence before that well let me tell me about that no deductible i understand i see the sons of loss then the amount by which such expense reduces this defined term amount of loss which is the sum of the soft costs we would have otherwise paid so what the e r a r provision as i understand i understand your linguistic argument but there may be some play in the joints of the language in the question is this is this creates just perverse incentives doesn't it for the insured to say well we will if if we're they have a duty to mitigate and you have to do some duties to pay them including mitigation costs if it's kind of the arielle and so could you address more specifically the hypothetical that the plaintiffs put in its brief  thirty four about the amount of the delays the incentives in essence to not put the pedal to the metal and get to completion as soon as with regard to that hypothetical they always have that duty to perform and had they bought more expediting coverage there was only one hundred thousand dollars of expediting coverage many of what they're calling  are a l is this it is the type of expediting costs that there are so you know moving more quickly to get this done problem is they had their limit of one hundred thousand dollars they could have bought more exciting coverage to cover it but they amount of soft costs it's a dollar for dollar think every soft cost that the insurance company saves will pay you a dollar jarrell because you brought down the soft costs that's why they're tied together so if you didn't have any soft cost that were quote otherwise payable under the policy as is the case here then you have nothing to bring it out in so that's why these are tied together so that leaves the insurer the insured rather with an incentive to not exactly rush quite as much right well they always have a duty i know they have a duty and you need to surely know how difficult that would be to enforce right you know project this complex you want to keep incentives aligned between the insurer in the insured to get the repairs done you know as economically rational impromptu as possible right everybody should have that incentive  interpretation of your policy blows that up i disagree your honor because what this policy is very specific about repairs for having had a payable soft cost if they had a hundred thousand dollars of payable so then they for every they might have a r e l because if they if that your e l brought down the stock costs but the problem is they didn't have a payable soft cost under this policy  which is why these two provisions are intertwined so let me ask you this if the delay was a ninety one days and the airport authority had a compensable claim for one day of soft costs coverage what expenses w right no change in interest payments it so ok let's say we get past that we assume you're wrong on that and then we get to judge weems question right but no then we get to they breached the policy duties they waived the soft costs and they didn't ninety one days let's pay or what i don't know what the amounts are your honor i can't just be one hundred thirty five thousand dollars one day's interest it's it's possible it depends on if what the amount of the soft costs are that they exactly are the parties locked in under any surance law to particular theories well there are under indiana insurance laws the the insurer has a duty to comply with the duties in the event of boston to the police told you and we're getting these losses you provide a form that says that you can take additional information right they provide we asked for a sworn statement of proof a loss which they theories of what they're claiming you have to look at the handling the insurance claim separately from the from the litigation because we asked them what your claims are they told us we had a claim for x dollars for direct costs response to their june seventh or july seventeenth two thousand and twelve letter where they asked us about are these provided the sworn statement approval last we submitted a or the company submitted an august tenth letter saying look you haven't given us a soft claim are you making us off cost plan because the soft cost claim is directly in a related with the jarrell client and they responded to that august seventeenth of two thousand and twelve and said we are making no soft cost claim per claim they tell us that again so that's we've been asking for a soft cost claim for for sixty years prior to to getting it so we have the right to rely upon their formal presentation of claim because we use that to determine our rights and liabilities have the policy we do it but if the two parties are working from different legal understanding of the policy if they think for example the are they can make any aureole claim even if they don't bust through the deductibles on the on the interest if you take the opposite position then you're like ships passing in the united in till you get to to court and you start well it's not an issue of legal theories your honor this is their insurance claim and we have the right to be able to investigate the insurance claim to know what they're claiming as a soft cost so that we can hire forensic accountants we can look at the numbers we can determine whatever it is we need to determine they tell us twice no we're not making such a claim and then they file two complaints an amended complaint neither of which make a soft cost claim and five months later that's when they first make us off cost claims in litigation so with regard to an insurance policy then the insured is bound to follow the the policy duties that indiana law says there are conditions proceeding to recover you can't even file a lawsuit schifrin case that the the morris case you can't do any of those involved shifting claims as opposed to failure to present claims and i'm sorry do any of those cases involve the shifting of claims or supplementing of claims as opposed to simply claim and we're going to present this claim and we're going to go by back to reinvent this whole soft cost claim which we told you didn't happen for six years so that now the insurance  company didn't have the opportunity to investigate it back then didn't have the opportunity to hire a forensic accountant back then the adjuster who was handling at that point time has passed away i mean this is all came out in litigation when they realize that for that to trigger there are a l which is what they want they need the soft cost claim to be able to go on the policy language so when an answer my question about the ninety one days and the airport authority have the compensable claim for one day a soft costa number being one hundred thirty five thousand like to tamworth and said your responses it depends on the expenses right is that i mean that's the essence of your response because that the other thing i want to know is  if the airport authority had expended funds to mitigate the delay from over ninety days to under ninety days such that they would not have had a compensable soft cost claim they could never recover under the position provision right as long as they have a payable soft cost claim they could recover it if they had enough expediting expense they could recover those fees but they couldn't get you are a l if it rotted under the soft cost plan under under the deductible so i guess the answer to your question is yes that that's but true but that that's why these these provisions are tied together i see my time's up now as memorial go you know just concretely on that the february twenty second two thousand and nine date does travelers dispute that that is the projected date of completion after using reasonable speed and materials yes because well number one you have to look at the language of the policy just i think pardon the interruption i think the question is just assume for the moment that your theory as to it opened up on this date and was put into operation use and therefore that's the the end date for the deductible period if we were to reject that is there a factual dispute on whether or not february twenty second two thousand and nine news is the projected date there's not a factual dispute because actually i admitted in its underlying pleadings that that end date was december sixteenth two thousand and eight so if you measure it from the september twenty eighth two thousand and eight date to the december sixteenth two thousand and eight date it's it's seventy nine days it's less than ninety seal is there any information about transit negotiations from ten years ago that still needs to be kept under seal we filed a motion relative to  certain portions of the underwrite not all of the underwriting back and forth but there are some that had rates which are used and they're proprietary rates of travelers that are used to determine it's there are it's there rates i mean that that's proprietary information to travelers this court upheld our motion and agreed that the more limited set of documents that we were questioned remain under seal the impact under you all right thank you counsel she got some additional time because of additional questions so i'm going to an additional three minutes honor i'd like to address initially one point that counsel made the airport stated in the underlying briefing that the projected completion date was december sixteenth two thousand and eight because it was the airport position that the correct measure would be the substantial completion date if the court is instead going to use as the unit of measure for the period of delay in completion if the completion date is going to be opening day instead of substantial completion then it's very clear in the underlying pleadings that the airport's position is that the come the final date would be february twenty second two thousand and nine so it depends on you just the column as you just can't simply compar apples to oranges you either have to use substantial completion the measure or opening day is the measure all right and if i can ask this this february twenty second two thousand and nine was what's the evidence or support for that there is an affidavit that's been submitted in support judgment motion executed by the construction the project manager for the construction manager saying that they had calculated what would be the projected day it's attached is a pretty construction schedule showing travelers who's taken the position that the correct measure should be i believe this is correct opening day that they had and a consultant to disagreed with that by a matter of a week or two and didn't exactly twenty second but i think put the date sometime in february of two thousand i think nine's my recollection i also want to address something that came up with respect to these additional coverages and the fact that the allegation was travelers taking the position there be no reason to have these additional coverage is the general coverage provision where as broad as the airport is submitted and there's a key point that needs to be made all of these additional coverages contain within them supplements additional supplements and there's a provision in the policy that says it's entitle the limits of insurance and makes clear that these any of the additional coverages that have their own sub limits will be on top of the basic limit of insurance which is seven hundred eighty seven million dollars i believe it is the basic limit of insurance but these coverages would extend beyond that so that's one reason why those provisions would be in the policy and if and going back just stepping back as a as a broader issue is if the situation is going to be as travelers has projected here with respect to the bond interest the madison truly means that the airport got no value for some significant coverage that was purchased at significant cost in premiums for both bought for both soft cost coverage and a arielle coverage and that was specifically discussed by the parties in advance of this policy being issued they weren't talking about if you have an issue and you have to go out and get additional financing what would be your top costs or what would happen if we had to issue whole new series of bonds they were talking about the financing for this project as intending to be covered as part of the soft cost coverage and  travers has taken the position that the budgeted amount we agree that that's a key term here is what was the budgeted amount and that's the term that's ambiguous in this situation because there is no budget reflected as your honor pointed out in the question there's no budgeted amount indicated the debt service schedule we disagree that is not the budget in amount for this project the debt service schedule reflects the amount that needs to be paid we also would point out to the extent that travelers this concerned or or raises the concern that somehow it was tricked into believing there is no soft cost claim we disagree with that completely the evidence has been that travelers continue to investigate the issues surrounding the bond interest asked questions about the bond interest the airport answered those questions and provided detailed information traveler's requested information costs the excel ration cost during the period of adjustment even after the proof of last had been submitted so if if in fact there is no coverage for the e r e l why would they continue to ask us questions about those kinds of c was continually being investigated and travelers thirty six witnesses when asked about what prejudice was in was occurred indicated there was no prejudice but to the magic words soft costs were not used during this during the course investigation your honor the during the course of the investigation it was in the context of the soft costs and the bond interest that was avoided that's correct your honor so those words were right yes and that's correct and soft public good assumption the soft cost claim that was that's what was derived from to the extent that you have to have one to have the other than the soft costs were always part of all right thank you to both counsel will take the case under advisement