A Florida railroad company incurred minimal losses from Hurricane Irma in 2017 because it took measures to protect its property, but insurers unfairly used the preventive efforts to justify denying coverage for $5.6 million worth of costs under an all-risk policy, it told an Eleventh Circuit panel on Tuesday.

Jonathan Y. Ellis of McGuireWoods LLP, representing Florida East Coast Holdings Corp., urged a three-judge panel during oral arguments in Jacksonville, Florida, to reinstate its lawsuit and overturn a summary judgment after arguing the insurers' interpretation of the policy's deductible clause is at odds with what's written in the plain text.

"When FEC removed some 600 railroad crossing gates as Hurricane Irma bore down on the coast of Florida, it did exactly what the insurers expected it to do," Ellis said. "But rather than be grateful that FEC had prevented greater losses, though, the insurers then applied an interpretation of the policy and principally the named windstorm exception that effectively removed that precautionary coverage."

In July 2021, Florida East Coast Holdings brought a Middle District of Florida lawsuit against several insurance companies after it was denied coverage for the losses it took by removing the railroad crossing gates shortly before Hurricane Irma struck Florida in September 2017.

The company said it also owns a 351-mile freight rail system that runs from Jacksonville to Miami, which also had to be shut down as the hurricane approached Florida.

FEC's efforts were successful, although it incurred about $5.6 million in costs for the removal, storage and installation of the gates, and lost revenues, it said. The railroad company's suit named Lexington Insurance Co., with whom it had a policy, as well as Aspen Specialty, Houston Casualty, Allied World, Ironshore Specialty and Indian Harbor, which also underwrote the coverage.

In February 2024, the Middle District of Florida granted the insurers' motion for summary judgment. FEC appealed the following May.

Ellis argued Tuesday that the lower court wrongly accepted the insurers' windstorm deductible interpretation based on 5% of property values only at locations that were damaged. But due to FEC's efforts, Ellis said, no locations were damaged.

"Can different deductibles be applied to different aspects of the same claim?" U.S. Circuit Judge Elizabeth L. Branch asked Ellis. "There's another provision that says if two or more deductibles provided in this policy apply to a single occurrence, the total to be deducted will not exceed the largest deductible applicable."

While Ellis said the policy has overlapping coverage for reduced losses and business interruption that could provide coverage for the entire $5.6 million, he argued that courts should "choose the greater path" of protection.

Eric. T. Krejci of Mound Cotton Wollan & Greengrass LLP, representing the insurers, said Hurricane Irma fit the policy's definition of a named windstorm and that the 5% deductible must apply.

Krejci said every coverage in the property insurance policy requires direct or physical damage except the two preservation of property provisions, and because of that, those two provisions expressly mention how the deductible will apply.

In a situation where there's no damage, the protective measures are listed among what's recoverable, Krejci said, adding that nothing else is recoverable because FEC isn't claiming any other property damage. "That doesn't take away the protection expenses from now being moved into the column as if it was damage," Krejci said.

"I'm trying to figure out why is it that they have to be held accountable for damage that didn't occur," U.S. Circuit Judge Nancy Abudu said.

The reason why this happened in this particular claim is due to the unique nature of Hurricane Irma, Krejci said, arguing that the storm's forecast to run up the middle of Florida from the south triggered FEC's requirement to remove every single crossing gate along its rail track. But Krejci said the storm veered off its predicted path and went up the west coast of Florida.

Krejci said if there are two or more deductibles, the highest one applies to the entire claim as if damage actually occurred. Krejci added that FEC is inserting extra words through its interpretation of the property damage section of the policy that states losses are added only if there's direct physical loss or damage.

"That's why you have to apply this in the absence of damage, effectively writing it out," Krejci said.

U.S. Circuit Judges William Pryor, Elizabeth L. Branch and Nancy Abudu sat on the panel for the Eleventh Circuit.

Florida East Coast Holdings is represented by Jonathan Y. Ellis of McGuireWoods LLP and Thomas E. Bishop and Frederick D. Page of Bishop Page & Mills PLLC.

The insurers are represented by Paul L. Fields Jr. and Stephen A. Kahn of Fields Howell LLP and Wayne Glaubinger, Eric. T. Krejci and Perry Goodman of Mound Cotton Wollan & Greengrass LLP.

The case is Florida East Coast Holdings Corp. v. Lexington Insurance Co. et al., case number 24-11479, in the U.S. Court of Appeals for the Eleventh Circuit.