Present: All the Justices
PMA CAPITAL INSURANCE COMPANY
v. Record No. 051179 OPINION BY JUSTICE DONALD W. LEMONS
March 3, 2006
US AIRWAYS, INC., ET AL.
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY
Joanne F. Alper, Judge
This appeal involves a claim for compensation for
business interruption losses arising from the September 11,
2001 terrorist attack on the United States of America. In
this appeal, we consider whether the trial court correctly
interpreted and applied the provisions of an insurance
contract. For the reasons discussed below, the judgment of
the trial court will be reversed.
I. Facts and Proceedings Below
US Airways, Inc., Allegheny Airlines, Inc., Piedmont
Airlines, Inc., PSA Airlines, Inc., and MidAtlantic Airways,
Inc., ("US Airways") entered into an "All Risk Manuscript
Property Policy" ("Policy") subscription insurance contract
with six insurance providers. The Policy provided commercial
property coverage in the amount of twenty-five million dollars
($25,000,000.00) from December 1, 2000, through December 1,
2001. The six insurance providers provided varying percentage
amounts of coverage and, of the six, only one, PMA Capital
Insurance Company ("PMA"), is involved in the present appeal.
PMA is the successor in interest to one of the original
subscribers, Caliber One Indemnity Company, which underwrote
10% of the twenty-five million dollars in coverage.
On the morning of September 11, 2001, terrorists hijacked
several commercial aircraft flying within the airspace of the
United States. Shortly after two of the aircraft were crashed
into the World Trade Center in New York City, the Federal
Aviation Administration (“FAA”) issued a “Notice to Airmen”
(“NOTAM” or "ground stop order") ordering all civilian
aircraft to land or stay on the ground. After a similar
attack on the Pentagon, the airport manager for the
Metropolitan Washington Airport Authority (“MWAA”),
Christopher U. Brown, ordered the evacuation and closure of
Ronald Reagan Washington National Airport ("Reagan National
Airport"). Although other airports around the country were
permitted to resume operations within several days after the
attacks, the FAA issued a Temporary Flight Restriction which
closed the air space within 25 nautical miles of Reagan
National Airport. Because of this FAA order, the MWAA closed
the Reagan National Airport facility and restricted access to
the facility for approximately two weeks. As a result, US
Airways was not permitted to conduct commercial flights into
or out of Reagan National Airport during the period from
September 11 to October 4, 2001.
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US Airways made a claim under the Policy for business
interruption losses and PMA denied coverage. US Airways then
filed its initial motion for judgment on August 12, 2003. It
was amended twice, and the second amended motion for judgment
formed the basis of the litigation in the trial court below.
US Airways sought a declaratory judgment that PMA was
obligated under the Policy to indemnify for business
interruption losses suffered by US Airways as a result of the
ground stop order issued by the FAA and the Reagan National
Airport closure order issued by the MWAA, damages from PMA for
breach of the terms of the Policy, and damages from PMA for
breach of its "implied covenant of good faith and fair
dealing." PMA filed an answer and grounds of defense.
Subsequently, PMA moved for summary judgment and US Airways
moved for partial summary judgment.
According to the trial court, PMA's motion for summary
judgment presented four issues:
1. Whether the civil authority orders upon
which US Airways bases its business
interruption claim are a peril covered under
the Policy;
2. Whether US Airways can claim a loss of
market share under the Policy;
3. Whether US Airways' claim should be barred
for failure to submit a proof of loss for all
the components of their claim; and
4. Whether US Airways can maintain a claim
against PMA for breach of the covenant of good
faith and fair dealings under Virginia law.
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The trial court denied summary judgment on the first issue,
holding that the Policy is "clear and unambiguous" and that "a
jury could find that coverage applied under the civil or
military intervention provision." The trial court granted
summary judgment on the second issue, holding that "it is
clear from the express terms of the Policy that the parties
did not intend to provide coverage for loss of market share."
The trial court denied summary judgment on the third issue,
holding that US Airways complied with the proof of loss
requirements of the policy. Finally, the trial court granted
summary judgment on the fourth issue, holding that US Airways'
claim based upon an "implied covenant of good faith and fair
dealing" was premature. The trial court dismissed this claim
without prejudice.
According to the trial court, US Airways’ motion for
partial summary judgment presented one issue: whether
proceeds received under the Air Transportation Safety and
System Stabilization Act ("Stabilization Act"), Pub. L. No.
107-42, 115 Stat. 230 (2001), should "offset any compensation
received under the Policy with PMA." Section 24 of the
Policy, entitled "Salvage and Recoveries," states in relevant
part that "[a]ll salvages, recoveries, and payments, excluding
proceeds from subrogation and underlying insurance recovered
or received prior to a loss settlement under this policy shall
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reduce the loss accordingly." US Airways argued that Congress
did not intend for the Stabilization Act to reduce insurance
proceeds. PMA argued that the plain language of the Policy
should resolve the controversy.
Because "payment" is not defined in the Policy, the trial
court used the definition given in Black's Law Dictionary:
"[t]he fulfillment of a promise, or the performance of an
agreement." Black's Law Dictionary 1129 (6th ed. 1990). The
trial court, rejecting PMA's argument, concluded that under
this definition, "it would appear that 'payments' [as used in
Section 24 of the Policy] do not contemplate proceeds from
federal programs." The trial court did not define or consider
the words "salvages" or "recoveries" in its letter opinion and
order. Utilizing language from the Federal Register, the
trial court relied upon commentary by the Department of
Transportation interpreting the Stabilization Act to surmise
"Congressional intent" and concluded:
Based upon the procedures set forth by the
federal government, US Airways must offset any
insurance proceeds from any claim under the
Stabilization Act, but that does not require US
Airways to offset the federal payment from its
claim for coverage under the . . . Policy.
The trial court granted US Airways' motion for partial summary
judgment.
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A bench trial followed and the trial court bifurcated the
proceeding into an initial phase to determine if coverage
existed under the terms of the Policy and, if necessary, a
second phase to determine damages. In the initial phase, the
trial court held that "US Airways' claim for business
interruption is covered by the Policy and that US Airways has
satisfied all of the necessary conditions precedent to move
for recovery." In the interest of judicial economy, and in
their own desire “to minimize the further expenditure of money
on litigation costs and attorneys’ fees,” PMA and US Airways
then stipulated to the amount US Airways would be able to
recover from PMA in the event this appeal by PMA proved
unsuccessful. In relevant part, the parties agreed that US
Airways’ recovery under the Policy would be $2.1 million, that
each would pay its own “litigation costs and attorneys’ fees,
whether incurred before or after the date of this
Stipulation,” and that the stipulation agreement would “remain
in effect unless and until the Supreme Court of Virginia
reverses the [trial court’s] finding of coverage or remands
the case for further proceedings.”
PMA filed a timely petition for appeal, which we granted
and limited to nine assignments of error. However, our
resolution of this appeal requires us to consider only one:
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It was error for the trial court to find that
any payments received by US Airways from the
federal government pursuant to the
Stabilization Act were not recoveries under the
[Policy’s] set-off provision.
II. Analysis
The standard of review we must employ is familiar and
well-settled. The interpretation of a contract presents a
question of law subject to de novo review. Bentley Funding
Group, L.L.C. v. SK&R Group, L.L.C., 269 Va. 315, 324, 609
S.E.2d 49, 53 (2005). “We review questions of law de novo,
including those situations where there is a mixed question of
law and fact." Westgate at Williamsburg Condo. Ass'n v.
Philip Richardson Co., 270 Va. 566, 574, 621 S.E.2d 114, 118
(2005). See also Barter Found., Inc. v. Widener, 267 Va. 80,
90, 592 S.E.2d 56, 61 (2004) (We review the trial court's
"application of the law de novo, while giving deference to
[its] factual findings."). “[W]e have an equal opportunity to
consider the words of the contract within the four corners of
the instrument itself.” Eure v. Norfolk Shipbuilding &
Drydock Corp., 263 Va. 624, 631, 561 S.E.2d 663, 667 (2002)
(citing Wilson v. Holyfield, 227 Va. 184, 187-88, 313 S.E.2d
396, 398 (1984)).
The contract is construed as written, without adding
terms that were not included by the parties. Wilson, 227 Va.
at 187, 313 S.E.2d at 398. When the terms in a contract are
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clear and unambiguous, the contract is construed according to
its plain meaning. Bridgestone/Firestone Inc. v. Prince
William Square Assocs., 250 Va. 402, 407, 463 S.E.2d 661, 664
(1995). "Words that the parties used are normally given their
usual, ordinary, and popular meaning. No word or clause in
the contract will be treated as meaningless if a reasonable
meaning can be given to it, and there is a presumption that
the parties have not used words needlessly." D.C. McClain,
Inc. v. Arlington County, 249 Va. 131, 135-36, 452 S.E.2d 659,
662 (1995); see also Scottsdale Ins. Co. v. Glick, 240 Va.
283, 288, 397 S.E.2d 105, 108 (1990); American Health Ins.
Corp. v. Newcomb, 197 Va. 836, 842-43, 91 S.E.2d 447, 451
(1956); Ames v. American National Bank, 163 Va. 1, 38-39, 176
S.E. 204, 216-17 (1934).
After a thorough review of the Policy, we will assume,
without deciding, that the trial court did not err in its
conclusion that "US Airways' claim for business interruption
is covered by the Policy and that US Airways has satisfied all
of the necessary conditions precedent to move for recovery."
We conclude that it is unnecessary to decide the coverage
issue on appeal because even if coverage applies, the
provisions of Section 24 of the Policy resolve this appeal.
PMA argues that the trial court erred in its judgment
that the payments received by US Airways from the federal
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government pursuant to the Stabilization Act were not required
to reduce losses claimed under the Policy. We agree with PMA.
In its claim under the Policy, US Airways stated losses of
approximately $58 million. The Policy limits were $25 million
and, as a participating insurer, PMA's maximum liability
exposure was $2.5 million. Pursuant to the Stabilization Act,
US Airways received approximately $310 million from the
federal government.
Section 24 of the Policy required that losses claimed
under the Policy be reduced by "[a]ll salvages, recoveries,
and payments, . . . received prior to a loss settlement
. . . ." Section 101 of the Stabilization Act, entitled
"Aviation Disaster Relief," is the portion of the Act
applicable to this appeal. In relevant part, it states:
(a) In General.– Notwithstanding any other
provision of law, the President shall take the
following actions to compensate air carriers
for losses incurred by the air carriers as a
result of the terrorist attacks on the United
States that occurred on September 11, 2001:
. . . .
(2) Compensate air carriers in an
aggregate amount equal to $5,000,000,000 for –
(A) direct losses incurred beginning
on September 11, 2001, by air carriers as
a result of any Federal ground stop order
issued by the Secretary of Transportation
or any subsequent order which continues or
renews such a stoppage; and
(B) the incremental losses incurred
beginning September 11, 2001, and ending
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December 31, 2001, by air carriers as a
direct result of such attacks.
Pub. L. No. 107-42, § 101(a), 115 Stat. 230, 230 (2001). By
its plain language, the Stabilization Act was designed to
"compensate air carriers" like US Airways for both "direct
losses" as a result of "any Federal ground stop order" and
"incremental losses" as a "direct result of" the September 11,
2001, terrorist attacks.
Pursuant to the Stabilization Act, the Department of
Transportation promulgated rules governing how air carriers
would receive federal compensation. See 14 C.F.R. §§ 330.1 -
330.45 (2005). The Office of the Secretary for the Department
of Transportation ("DOT") commented on these rules prior to
their final publication. See Procedures for Compensation of
Air Carriers, 67 Fed. Reg. 54,058 (Aug. 20, 2002). The trial
court relied on these comments in reaching its judgment and US
Airways argues that these comments demonstrate that the
Congress of the United States did not intend for the
Stabilization Act to constitute a salvage, payment, or
recovery for purposes of Section 24 of the Policy.
In commenting on the Stabilization Act, the DOT declared
that President Bush and the Congress acted "rapidly to
preserve the continued viability of the U.S. air
transportation system." Id. at 54,058. The DOT, in
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interpreting Section 101 of the Stabilization Act, stated,
"Congress intended the Act to compensate carriers for those
permanent, un-recovered economic losses that the carrier
actually experienced or became liable for during the entire
applicable time period." Id. at 54,062. The DOT concluded
that the "purpose of the payments was to mitigate or prevent
losses as a way of preventing bankruptcies, massive service
disruptions and additional layoffs." Id. at 54,063.
When viewed together, the plain language of both Section
24 of the Policy and Section 101 of the Stabilization Act
clearly indicate that the proceeds received by US Airways from
the federal government do constitute "salvages, recoveries,
and payments" and that the trial court erred in concluding
otherwise. The Policy did not define the words "salvages,
recoveries, and payments." Of the three qualifying
categories, the trial court only considered the term
"payments" and held that the proceeds received by US Airways
under the Stabilization Act were not "payments" as
contemplated by the Policy and did not have to be deducted
from any claims under the Policy. Assuming without deciding
that the trial court did not err in its definition of
"payments," the trial court did err by not considering the
term "recoveries." "Recovery" is defined as "the regaining or
restoration of something lost or taken away," Black's Law
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Dictionary 1302 (8th ed. 2004), and "the act of regaining or
returning toward a normal or usual state." Webster's Third
New International Dictionary 1898 (1993).
Section 101 of the Stabilization Act clearly states that
its purpose is "to compensate air carriers for [direct and
incremental] losses incurred by the air carriers as a result
of the terrorist attacks on the United States that occurred on
September 11, 2001." Pub. L. No. 107-42, § 101(a), 115 Stat.
230, 230 (2001). The comments published in the Federal
Register by the Department of Transportation as part of the
rules it promulgated pursuant to the Stabilization Act
reaffirm this purpose. Stated differently, the federal
compensation provided by Stabilization Act was for the purpose
of regaining or restoring the losses suffered by US Airways as
a result of the terrorist attack of September 11, 2001. Thus,
the Stabilization Act funds received by US Airways are a form
of "recoveries" under Section 24 of the Policy.
In ruling that US Airways was not required by Section 24
of the Policy to reduce its claim for business interruption
losses by the amount of the funds received from the federal
government under the Stabilization Act, the trial court
essentially re-wrote the Policy and made a new contract
between PMA and US Airways. It was error to do so. See
Westgate, 270 Va. at 574, 621 S.E.2d at 118; Lansdowne Dev.
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Co., L.L.C. v. Xerox Realty Corp., 257 Va. 392, 400-01, 514
S.E.2d 157, 161 (1999).
IV. Conclusion
Assuming without deciding that US Airways was covered by
the Policy for the business interruption losses suffered as a
result of the FAA order and the MWAA order, Section 24 of the
Policy clearly requires the proceeds received by US Airways
pursuant to the Stabilization Act to reduce US Airways'
claimed losses against PMA under the Policy. The $310 million
received far exceeds the $58 million in claimed losses and far
exceeds the $2.5 million potential liability of PMA under the
Policy. US Airways conceded during oral argument that if
Section 24 of the Policy barred its recovery then remand would
be unnecessary. Accordingly, we will reverse the judgment of
the trial court and we will enter final judgment in favor of
PMA.
Reversed and final judgment.
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