Omni Berkshire Corp. v. Wells Fargo Bank, N.A

307 F.Supp.2d 534 (2004)

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Nature of the Case

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Facts

Omni (P) borrowed $250 million in 1998. The loan agreement required P to obtain and maintain 'comprehensive all risk insurance' on the hotels as well as 'such other reasonable insurance' as the lender might request. The agreement did not define the phrases 'comprehensive all risk insurance' or 'all risk.' The Agreement does not specifically refer to terrorism insurance or acts of terrorism. Section 6.1(a) requires P to obtain and maintain upon sixty (60) days' written notice, such other reasonable insurance and in such reasonable amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to [each of the five hotels] located in or around the region in which the [hotel] is located. After 9/11 insurance companies began excluding damage from terrorist attacks from their 'all risk' policies. Terrorism insurance had to be obtained in the form of separate, stand-alone policies, and the premiums were high. On March 1, 2002, P's renewed policy contained an exclusion for acts of terrorism. Wachovia advised P that its insurance did not comply with the Agreement because the insurance excluded terrorist acts. After several months, Wells Fargo (D) offered to accept $60 million in coverage. P did not want to spend the money for terrorism insurance. P commenced this lawsuit. Two issues are presented: First, whether plaintiffs' obligation to maintain 'comprehensive all risk insurance' requires it to continue to maintain terrorism coverage in the post-September 11, 2001 world, now that terrorism insurance is typically excluded from 'all risk' policies; and second, assuming no such obligation existed, whether it was reasonable for the servicing company to require plaintiffs to obtain terrorism insurance under the 'other reasonable insurance' clause. P obtained a quote for $60 million in terrorism coverage. It was $316,000 or 63% of the cost of P's all risk policy.