Indianapolis Airport Authority v. Travelers Property Casualty C O. of America

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16-2675
INDIANAPOLIS A IRPORT A UTHORITY,
Plaintiff-Appellant,
v.
T RAVELERS P ROPERTY C ASUALTY C O. OF A MERICA ,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:13-cv-01316-JMS-MPB — Jane Magnus-Stinson, Chief Judge.
____________________
A RGUED D ECEMBER 9, 2016 — D ECIDED FEBRUARY 17, 2017
____________________
Before WILLIAMS and HAMILTON, Circuit Judges, and
C HANG , District Judge.*
HAMILTON , Circuit Judge. In this diversity-jurisdiction case,
the Indianapolis Airport Authority sued Travelers Property
Casualty Company of America over Travelers’ partial denial
of a claim for coverage arising from an airport construction
* The Honorable Edmond E. Chang, United States District Judge for
the Northern District of Illinois, sitting by designation.

-- 1 of 29 --

2 No. 16-2675
accident that occurred in 2007. On motions for summary judg-
ment, the district court interpreted the insurance contract in
favor of Travelers on several issues. Following summary judg-
ment, the Airport Authority’s case was narrowed to a claim
for unreimbursed inspection costs associated with the inci-
dent. Then, two weeks before trial was set to begin on that
claim, the district court entered an evidentiary order that ef-
fectively precluded the Airport Authority from proving that
sole remaining claim. The Airport Authority sought entry of
final judgment so that it could appeal, and the district court
entered judgment in Travelers’ favor. On the Airport Author-
ity’s appeal, we affirm in part and reverse in part the district
court’s summary judgment order, and we vacate the eviden-
tiary order for further consideration in light of this opinion.
I. Factual and Procedural Background
Plaintiff Indianapolis Airport Authority owns and oper-
ates the Midfield Terminal, a passenger terminal that opened
for business on November 11, 2008. The Midfield Terminal
project cost over $1 billion—and like any project of such mag-
nitude, it had its share of setbacks. In January 2007, two shor-
ing towers were being used to lift steel trusses to the roof of
the terminal. Those shoring towers failed, causing a portion
of the terminal’s roof structure to drop by about twelve inches.
As a result of that “Shoring Tower Incident,” work on the ter-
minal stopped temporarily. The Airport Authority incurred
millions of dollars in inspection and repair costs, as well as
ancillary costs traceable to the incident. Yet despite the set-
back, the project remained largely on schedule. Before the
Shoring Tower Incident, the terminal had been scheduled to
open for business on September 28, 2008. It ultimately opened
44 days later, on November 11, 2008.

-- 2 of 29 --

No. 16-2675 3
Construction of the Midfield Terminal project was insured
by a commercial inland marine policy underwritten by de-
fendant, Travelers. Unlike most insurance policies for con-
sumers, the policy was not a boilerplate contract of adhesion
but was instead a customized policy negotiated by the parties.
The policy included three categories of coverage at issue in
this litigation: (1) builders’ risk (the “General Coverage Provi-
sion”); (2) soft costs (the “Soft Cost Provision”), particularly
bond interest in excess of the budgeted amount; and (3) ex-
penses to reduce the amount of loss, known a little awk-
wardly as ERAL (the “ERAL Provision”), an additional cover-
age feature that paid for certain expenses incurred by the Air-
port Authority to reduce delay and mitigate soft costs. The
policy also included other coverages and coverage extensions
that are not at issue here. We have considered the breadth and
complexity of the policy in evaluating the scope of the provi-
sions that are at issue, particularly the General Coverage Pro-
vision.
In 2008, the Airport Authority provided Travelers with a
tentative proof of loss statement for the Shoring Tower Inci-
dent. It submitted a revised, sworn proof of loss statement in
2012. In its proof of loss, the Airport Authority identified a
total claim of approximately $12.8 million, less $3.6 million in
payments that Travelers had already made. Following further
adjustments by the Airport Authority and some additional
payments by Travelers, the insurance company rendered a fi-
nal claim decision in July 2013, leaving the Airport Authority
with a non-covered loss of a little over $9 million exclusive of
any soft costs.
The Airport Authority then sued, alleging that Travelers
breached its contract and seeking a declaratory judgment on

-- 3 of 29 --

4 No. 16-2675
the extent of coverage and the parties’ rights and obligations
under the policy. After discovery, the parties filed cross-mo-
tions for summary judgment. The district court denied the
Airport Authority’s motion and granted Travelers’ motion in
large part. The court construed the General Coverage Provi-
sion narrowly, and it held that the Airport Authority was not
entitled to soft costs or ERAL coverage. See Indianapolis Air-
port Authority v. Travelers Property Casualty Co. of America, 178
F. Supp. 3d 745, 764–65 (S.D. Ind. 2016).
As a practical matter, after the district court’s summary
judgment order, only one aspect of the Airport Authority’s
non-covered loss remained for trial: its claim for around $2
million in inspection costs under the General Coverage Provi-
sion. Shortly before trial was scheduled to begin, however,
Travelers moved to exclude opinion testimony by two key
witnesses whom the Airport Authority had designated as hy-
brid fact/expert witnesses pursuant to Federal Rule of Civil
Procedure 26(a)(2)(C). The district court restricted the subject
matter about which those hybrid witnesses might testify
while also holding that the Airport Authority would have to
prove its damages with expert testimony. See Indianapolis Air-
port Authority v. Travelers Property Casualty Co. of America, No.
1:13-cv-01316-JMS-MPB, 2016 WL 2997506, at *10, 13–14 (S.D.
Ind. May 23, 2016). That ruling proved fatal to the Airport Au-
thority’s remaining claim because it had designated no dam-
ages expert. The Airport Authority therefore moved for entry
of final judgment, reserving its right to appeal the adverse rul-
ings. The district court entered final judgment in Travelers’ fa-
vor.

-- 4 of 29 --

No. 16-2675 5
On appeal, the Airport Authority challenges both the dis-
trict court’s summary judgment order and its order on Trav-
elers’ motions to exclude. With respect to the summary judg-
ment order, we agree with the district court’s construction of
the General Coverage Provision. We also agree that the Air-
port Authority has no compensable soft cost claim because of
the deductible. However, we disagree with the district court’s
conclusion that the policy’s ERAL Provision was not trig-
gered. If the Airport Authority can demonstrate with compe-
tent evidence that it incurred expenses to reduce soft costs for
which Travelers otherwise would have been liable, it may re-
cover those expenses under the ERAL Provision, subject to
policy limits. With respect to the district court’s evidentiary
rulings, we think it best to vacate those rulings for the court’s
reconsideration in light of our analysis concerning the scope
of insurance coverage and the topics for trial. We provide
some guideposts for the court and the parties on remand.1
II. The Scope of Coverage
A. Legal Standards
We review de novo the district court’s decision on the par-
ties’ cross-motions for summary judgment, construing all
facts and drawing all reasonable inferences in favor of the
1 Travelers filed a cross-appeal, No. 16-2847, contending that the dis-
trict court erred in failing to grant its summary judgment motion in its
entirety. We dismissed that cross-appeal in a September 13, 2016 order,
explaining that a “cross-appeal is necessary and proper only when a party
wants the appellate court to alter the judgment (the bottom line result, not
the grounds or reasoning that led to the judgment).” Travelers received
everything that it could hope for in the district court—the dismissal of the
action against it. The arguments it asserted in the cross-appeal could be
offered as alternative grounds to affirm the judgment.

-- 5 of 29 --

6 No. 16-2675
party against whom the motion under consideration was
filed. Hess v. Board of Trustees of Southern Illinois University, 839
F.3d 668, 673 (7th Cir. 2016).
The parties agree that Indiana law governs our interpreta-
tion of the insurance policy at issue here. In Indiana, insur-
ance policies are generally subject to the same rules of con-
struction that apply to other types of contracts. Frye v. Auto-
Owners Ins. Co., 845 F.3d 782, 788 (7th Cir. 2017), citing Justice
v. American Family Mutual Ins. Co., 4 N.E.3d 1171, 1176 (Ind.
2014). In determining the meaning of policy provisions, we
“consider all of the provisions … and not just individual
words, phrases, or paragraphs. Thus, the insurance policy
must be construed as a whole.” Burkett v. American Family Ins.
Group, 737 N.E.2d 447, 452 (Ind. App. 2000) (citations omit-
ted). “If the policy’s language is clear and unambiguous, it is
to be given its plain and ordinary meaning.” National Fire &
Casualty Co. v. West ex rel. Norris, 107 F.3d 531, 535 (7th Cir.
1997). A special rule of construction applies, however, when
an insurance contract contains ambiguous language: such lan-
guage must be “construed both to favor the insured and to
further indemnity.” Id.
B. The General Coverage Provision
The policy’s General Coverage Provision stated that Trav-
elers would pay for “loss” (“accidental loss or damage”) to
“Covered Property” from any “Covered Causes of Loss.” The
term “Covered Property” was defined as “Builders’ Risk,”
which was further defined as property described in the policy
declarations and consisting of “Buildings or structures in-

-- 6 of 29 --

No. 16-2675 7
cluding temporary structures” and “Property that will be-
come a permanent part of the buildings or structures.” 2 The
term “Covered Causes of Loss” was defined as the “RISKS OF
DIRECT PHYSICAL ‘LOSS.’” A separate but related provi-
sion appearing in the policy’s general conditions, which the
parties refer to as the “Valuation Condition,” explained that
property value at the time of loss was the lesser of (1) its actual
cash value, (2) the cost of reasonably restoring the property to
its pre-loss condition, or (3) the cost of replacing the property
with substantially identically property.
The district court held that the General Coverage Provi-
sion was unambiguous and that it covered only “direct phys-
ical damage caused by the Shoring Tower Incident” and the
“cost of reasonably restoring the damaged property to its con-
dition immediately before the Shoring Tower Incident.” Indi-
anapolis Airport Authority, 178 F. Supp. 3d at 764. We agree
with that interpretation.
The Airport Authority argues that, because the General
Coverage Provision defined the covered causes of loss as the
risks of direct physical loss, that coverage must extend beyond
mere physical damage. The Airport Authority’s argument
fails to appreciate that “Covered Property” was limited to
“Builders’ Risk,” i.e., buildings and structures. In other words,
the General Coverage Provision pays only for accidental loss
or damage (resulting from a covered cause of loss) to physical
structures. Direct repair costs would count, as would inspec-
tion costs associated with direct repair. But the economic and
2 The declarations further define Builders’ Risk as “ALL PHASES PER
SCHEDULE ON FILE WITH US OF NEW MIDFIELD TERMINAL
PROJECT AT THE INDIANAPOLIS INTERNATIONAL AIRPORT.”

-- 7 of 29 --

8 No. 16-2675
consequential costs that the Airport Authority describes in its
operative Second Amended Complaint (which include costs
of resequencing and accelerating different construction tasks,
costs to resolve change orders and contractor claims, and
overtime expenses to minimize delays) are not included under
general coverage. That is not to say that these consequential
costs are necessarily excluded from all coverage: they may
qualify under one of the policy’s additional coverage provi-
sions, such as the ERAL Provision discussed below. But they
are not compensable under the General Coverage Provision.
On the contrary, the policy’s exclusions section stated that
“loss” (as the term is used in the General Coverage Provision)
did not include damages resulting from “Delay, loss of use or
loss of market.” See One Place Condominium, LLC v. Travelers
Property Casualty Co. of America, No. 11 C 2520, 2015 WL
2226202, at *5 (N.D. Ill. Apr. 22, 2015) (“[W]hile the insured
may recover the entire cost … to repair the damage to the
property itself … if that damage resulted in increased material
and labor costs to construct the remainder of the project …
there is only limited [additional] coverage … .”).
In arguing for a more expansive understanding of the
General Coverage Provision, the Airport Authority cites trea-
tises saying that general coverage ordinarily applies to “direct
physical loss” only. The Airport Authority also cites a more
recent version of Travelers’ form policy, which now states that
Travelers will pay for “direct physical loss of or damage to
Covered Property.” The Airport Authority describes the dif-
ferences between the General Coverage Provision and the
comparable provisions in these extrinsic sources as “signifi-
cant and material.” We cannot rely on extrinsic sources be-
cause the operative language in the General Coverage Provi-
sion is unambiguous. See AM General LLC v. Armour, 46

-- 8 of 29 --

No. 16-2675 9
N.E.3d 436, 440 (Ind. 2015) (“Clear and unambiguous terms
in the contract are deemed conclusive, and when they are pre-
sent we will not construe or look to extrinsic evidence, but will
merely apply the contractual provisions.”) (citation omitted).
While the newer Travelers language is even clearer than the
version in the Airport Authority policy, the latter is suffi-
ciently clear to enforce as written in this case.
The Airport Authority also challenges the district court’s
reliance on the Valuation Condition to determine the scope of
loss under the General Coverage Provision. According to the
Airport Authority, the Valuation Condition “has no bearing
on the amount of loss that is recoverable; rather, it solely ad-
dresses the value of … Covered Property.” We doubt a prop-
erty insurer would have any reason to value property apart
from determining its obligations in the event of loss. The plain
text of the Valuation Condition linked valuation to loss: “In
the event of loss or damage, the value of property will be de-
termined as of the time of loss or damage.” The district judge
correctly understood the Valuation Condition to provide a
framework for computing insurance liability in just this situ-
ation, where the insured has sustained damage to the build-
ings and structures that constitute the insured Builders’ Risk.
The Airport Authority’s broad interpretation of the Gen-
eral Coverage Provision is inconsistent with the plain text of
that provision. We agree with the district court that the Gen-
eral Coverage Provision covers only physical damage caused
by the Shoring Tower Incident and those expenses directly re-
lated to restoration of the damaged property.

-- 9 of 29 --

10 No. 16-2675
C. Soft Cost Provision
The policy’s Soft Cost Provision stated that Travelers
would pay for “soft costs” incurred during a “period of delay
in completion.” “Soft costs” were defined as those “actual and
necessary business costs” (as shown in the policy declara-
tions) that exceeded the “budgeted amount” for the project.
The “period of delay in completion” extended from the
“planned completion date” (that is, the date the project would
have been “put into operation or use in the normal course of
construction” if a covered loss had not occurred) to the date
when the project “should be completed using reasonable
speed and similar materials and workmanship.” Soft cost cov-
erage was limited to $100 million and subject to a 90-day de-
ductible.
Although the policy declarations listed several categories
of soft costs, only one category is at issue in this appeal: bond
interest. Like many municipal construction projects, the Mid-
field Terminal was financed with revenue bonds. The Airport
Authority issued four separate bond series. The terms pro-
vided that a portion of the bond proceeds sufficient to service
interest during the construction period would be segregated
in a capitalized interest account. After construction was com-
plete and the airport was open for business, whatever funds
remained in the capitalized account would be transferred to
the Airport Authority’s general construction fund, and the
bond interest payments would be made with airport reve-
nues.
Nobody disputes that the Midfield Terminal’s opening
day was delayed somewhat by the Shoring Tower Incident
and that bond interest continued accruing during that period
of delay. The Airport Authority’s 2012 proof of loss identified

-- 10 of 29 --

No. 16-2675 11
a daily interest cost of $122,387.73. Since the terminal had
been scheduled (prior to the Shoring Tower Incident) to open
for business on September 28, 2008, and since it actually
opened on November 11, 2008, the Airport Authority had to
draw on the capitalized interest account to pay more than $5
million in bond interest that it had planned to service instead
with airport revenues.
Nevertheless, Travelers argues—and the district court
agreed—that the Airport Authority did not pay bond interest
in excess of its “budgeted amount” and therefore could not
recover a soft cost claim. The district court also agreed with
Travelers that the soft cost claim was barred both because the
Airport Authority failed to submit its claim in advance of this
lawsuit (and so ostensibly violated its policy duties) and be-
cause the Airport Authority incurred no soft costs beyond the
90-day deductible window. We disagree with Travelers’ posi-
tion concerning the Airport Authority’s “budgeted amount”
of interest and its policy duties, but we agree that the deduct-
ible bars the Airport Authority from recovering any soft costs.
1. “Budgeted Amount”
Travelers first argues that the Airport Authority cannot re-
cover bond interest as a soft cost because it “never incurred
even one dollar of [interest] in excess of its budgeted
amount.” As Travelers observes, the Airport Authority con-
ceded it paid no surplus interest to bond holders beyond the
amounts specified in the bonds’ debt service schedules. That
concession is hardly surprising. The debt service schedules
plotted out the total interest to be paid annually during the
life of each bond. That total interest was a function of the
amount borrowed and the yield rates: it had nothing to do

-- 11 of 29 --

12 No. 16-2675
with the success of the project, and it would not have been
affected by even a much longer delay.3
But the policy’s Soft Cost Provision did not depend on
debt service schedules. It did not say that Travelers would
cover only those interest payments exceeding the dollar
amounts specified in the bond paperwork. Instead, it said that
Travelers would pay for bond interest incurred during the pe-
riod of delay in completion in excess of the “budgeted
amount.” That key term—budgeted amount—was not de-
fined in the policy. We think the language sweeps more
broadly than Travelers contends. The word “budget” implies
an allocation of funds: money set aside for a particular pur-
pose. The Airport Authority budgeted to pay its bond interest
from its capitalized interest account until the Midfield Termi-
nal was operational and began earning revenue, as planned
for September 28, 2008. The Shoring Tower Incident delayed
the terminal’s opening date, so the Airport Authority was
forced to dip more deeply into its capitalized account than it
had planned. That unanticipated drawdown left the Airport
Authority with less bond principal to spend on other endeav-
ors. That was a soft cost under the policy.
No doubt, Travelers could have defined “budgeted
amount” more narrowly. It could have defined the term to re-
flect only the actual dollar amount of bond interest paid, irre-
spective of source, as prescribed by the debt service sched-
ules. But Travelers did not define the term. Its plea that we
3 The 2008 bond series differed from the other series in that it offered
a variable interest rate and therefore did not include a comprehensive pay-
ment schedule. Still, the interest payable on the 2008 bond series had noth-
ing to do with project completion or project delay.

-- 12 of 29 --

No. 16-2675 13
nevertheless adopt a narrow construction that favors it, the
insurer, is contrary to Indiana law. See Secura Supreme Ins. Co.
v. Johnson, 51 N.E.3d 356, 360 (Ind. App. 2016) (if insurer
wanted court to attach special requirement to contract term, it
should have defined term accordingly).
Alternatively, even if we thought the term “budgeted
amount” were ambiguous, we would then construe the term
“both to favor the insured and to further indemnity,” West,
107 F.3d at 535. In addition, evidence from the parties’ negoti-
ations during the underwriting stage, which remains under
seal but which we have reviewed, shows that both parties in-
tended that Travelers would cover bond interest in the event
of a delay. Thus, even if we turned to extrinsic evidence to un-
derstand the meaning of “budgeted amount,” we would still
conclude that the Airport Authority’s unplanned drawdown
from its capitalized interest account was a soft cost under the
policy.
2. Policy Duties
Travelers next argues that the Airport Authority breached
its policy duties by failing to submit its soft cost claim and,
indeed, by telling Travelers that it had no such claim. In mak-
ing this argument, Travelers cites Section C of the policy’s loss
conditions, which required an insured, among other things,
to give prompt notice of a loss event; to cooperate during the
ensuing investigation; and to submit a sworn proof of loss
statement upon Travelers’ request. Nothing in Section C or in
any other section of the policy specified that a proof of loss
statement was a final document that could not be revised if
new information surfaced. Likewise, nothing in Section C or
in any other section of the policy required the insured to sub-
mit a final, integrated claim by a certain date. In this case, the

-- 13 of 29 --

14 No. 16-2675
Airport Authority submitted a proof of loss statement using
Travelers’ form, and it supplied extensive supporting docu-
mentation. We do not see how in so doing the Airport Author-
ity breached a policy duty or failed to comply with a condi-
tion precedent to coverage.
The Airport Authority included with its proof of loss a cal-
culation of the bond interest that it would have paid between
September 29, 2008 (the day after the terminal’s pre-loss
scheduled opening date) and February 22, 2009 (the Airport
Authority’s post-loss projected opening date), though osten-
sibly to support its ERAL claim rather than a soft cost claim.
The Airport Authority likewise attached its debt service
schedules and bond documentation as exhibits to the proof of
loss. Travelers asserts that an insurer is entitled to proof of loss
to “put the insurer in possession of the facts upon which the
insurer is to make its determination.” True enough, but Trav-
elers had the factual information it needed to determine
whether the Airport Authority had a viable soft cost claim for
bond interest.
At the very least, the Airport Authority substantially com-
plied with its duty to provide a sworn proof of loss, and sub-
stantial compliance is all that Indiana law requires. See Indi-
ana Ins. Co. v. Plummer Power Mower & Tool Rental, Inc., 590
N.E.2d 1085, 1089 (Ind. App. 1992); see also Ebert v. Grain Deal-
ers Mutual Ins. Co., 303 N.E.2d 693, 700 (Ind. App. 1973)
(“Where a policy provides for notice and proof of loss within
a stated period, the insured must comply with that provision
as a condition precedent to recovery under the policy. How-
ever, the insured may show … a substantial compliance on his
part with the condition.”) (citations omitted). The substantial
compliance doctrine makes good sense: a rule requiring strict

-- 14 of 29 --

No. 16-2675 15
compliance with the fine print buried in an insurance contract
could result too easily in unintended forfeitures, which are
anathema to the law. See Gates v. Houston, 897 N.E.2d 532, 536
(Ind. App. 2008), citing Skendzel v. Marshall, 301 N.E.2d 641,
644 (Ind. 1973); see also Travelers Ins. Cos. v. Maplehurst Farms,
Inc., 953 N.E.2d 1153, 1164 (Ind. App. 2011) (May, J., dissent-
ing). Because the Airport Authority complied with its policy
duties, we do not address the question, debated at some
length in the briefs, whether non-compliance may be excused
if the insurer suffers no prejudice.
Travelers alternatively contends that the Airport Author-
ity waived its right to make a soft cost claim by saying in pre-
litigation correspondence that it had no such claim. Travelers’
position is not persuasive. For a party to be bound by a
waiver, the party must have had knowledge of and the intent
to relinquish a particular right. American Standard Ins. Co. of
Wisconsin v. Rogers, 788 N.E.2d 873, 877 n.4 (Ind. App. 2003).
Here, the correspondence in which the Airport Authority pur-
portedly “waived” its soft cost claim made clear that it de-
clined to present such a claim only because it believed the 90-
day deductible stood in its way. 4 The Airport Authority
4 In an August 17, 2012 letter, counsel for the Airport Authority wrote
that the Airport Authority was “not making a soft cost claim per se, rec-
ognizing that the period of actual delay … was less than the 90 day de-
ductible.” Likewise, in an August 2, 2013 letter, counsel wrote that the Air-
port Authority had no plans to tender a soft cost loss to Travelers “because
the policy provides that there is a 90 day deductible for soft cost losses.”
As discussed below, we agree with the Airport Authority’s original un-
derstanding of the deductible: it did indeed bar the Airport Authority
from recovering soft costs here. But nothing prevented the Airport Au-
thority from arguing for a different understanding of the deductible in this
lawsuit.

-- 15 of 29 --

16 No. 16-2675
changed its position after litigation commenced: we see no
reason why it was barred from doing so. Parties’ legal theories
frequently evolve both before and during litigation. The Fed-
eral Rules of Civil Procedure—which allow alternative and
even inconsistent pleadings and take a permissive view of
amendments—are drafted flexibly so parties may tailor their
theories as they conduct discovery and learn more about the
case. Even a sworn statement concerning the basis for a law-
suit by a party representative may not necessarily bind the
party as the lawsuit proceeds. See First Internet Bank of Indiana
v. Lawyers Title Ins. Co., No. 1:07-cv-0869-DFH-DML, 2009 WL
2092782, at *4 (S.D. Ind. July 13, 2009), citing A.I. Credit Corp.
v. Legion Ins. Co., 265 F.3d 630, 637 (7th Cir. 2001). If a party is
not necessarily bound by its representations during litigation,
we cannot understand why it should be bound by its informal
representations prior to litigation—and Travelers cites no In-
diana law that supports its aggressive waiver theory.
3. Deductible for Soft Costs
Although we reject Travelers’ narrow construction of the
term “budgeted amount” and its arguments that the Airport
Authority breached its policy duties and waived its soft cost
claim, we agree with Travelers and the district court that the
90-day deductible bars the Airport Authority from recovering
any soft costs. The policy provided that Travelers would not
pay soft costs until the deductible period expired and would
then pay for only those soft costs incurred “in excess of such
deductible, up to the Limit of Insurance.”
Since the deductible was expressed in days rather than
dollars, to apply the deductible we must determine the date
on which the 90-day period began running. The policy speci-
fied that soft costs were payable during the “period of delay

-- 16 of 29 --

No. 16-2675 17
in completion,” which began on the “planned completion
date” and ended on the date the project should have been
completed “using reasonable speed and similar materials and
workmanship.”
The Midfield Terminal project schedule did not define a
“planned completion date.” Instead, it projected both a “date
of substantial completion” (July 24, 2008) and an “opening
day” (September 28, 2008). After the Shoring Tower Incident,
the construction manager estimated that with “reasonable
speed and similar materials and workmanship” it could
achieve substantial completion on December 16, 2008 and
could open for business on February 22, 2009. The Airport
Authority urges us to compute the “period of delay in com-
pletion” as running from the original to the revised dates of
substantial completion. Under that approach, the deductible
period would extend from July 24, 2008 until October 22, 2008.
Since the Midfield Terminal did not actually open until No-
vember 11, 2008, the Airport Authority could then presuma-
bly recover the bond interest it incurred during the three
weeks between the end of the deductible period and the date
the airport opened.
The Airport Authority’s preferred computation runs con-
trary to clear language in the policy. The policy defined
“planned completion date” as the date the project “would be
put into operation or use in the normal course of construction”
if no loss had occurred. The phrase “put into operation or
use” connotes opening day.5 Prior to the Shoring Tower Inci-
5 The date the project would have been put into use was not the date
of substantial completion. The Airport Authority’s Rule 30(b)(6) witness
testified: “There would be a number of things that would occur after the

-- 17 of 29 --

18 No. 16-2675
dent, the airport was scheduled to open for operations on Sep-
tember 28, 2008; following the incident, the construction man-
ager planned for a February 22, 2009 opening. The 90-day de-
ductible ran from September 28 until December 27. Assuming
that the construction manager’s post-loss projection was rea-
sonable (a disputed point discussed below), the Airport Au-
thority could recover soft costs it incurred between December
27 and February 22.
The problem is that the Airport Authority did not actually
incur any soft costs between December 27 and February 22.
Recall that the Midfield Terminal opened for business on No-
vember 11, 2008, well in advance of the construction man-
ager’s earlier projection. The only soft costs at issue in this
case are the bond interest payments exceeding the amount the
Airport Authority had budgeted to withdraw from its capital-
ized interest account. As of opening day, the fully operational
airport provided revenues to service those interest payments.
The Airport Authority has not identified any bond interest ac-
cruing after November 11, 2008 that it was forced to service
through its capitalized account or through some other unan-
ticipated means. Thus, the Airport Authority has no compen-
sable soft cost claim.
We recognize that this result might seem harsh: after all, it
appears that the Airport Authority managed to shave more
than three months off its expected delay. To the extent the Air-
port Authority incurred additional costs in reducing that de-
lay, it may be able to recover those costs as ERAL expenses,
that is, expenses to reduce the amount of loss. But it cannot
date of substantial completion,” including “finishing work that would
have to be done and systems put in place to make the airport operational.”

-- 18 of 29 --

No. 16-2675 19
recover soft costs because it incurred no soft costs beyond the
90-day deductible window.
D. ERAL Provision
The policy’s provision to cover expenses to reduce the
amount of the loss, known as the ERAL Provision, stated that
Travelers would pay the Airport Authority’s necessary ex-
penses during the “post-loss period of construction” if the
Airport Authority would not have incurred such expenses but
for a covered loss that delayed completion beyond the
planned completion date. However, Travelers would pay no
more than the “amount by which such expense reduces the
‘amount of loss’ [Travelers] would have otherwise paid.”
“Amount of loss” was defined as the actual soft costs covered
by the policy; the “post-loss period of construction” began on
the date of loss and ended on the date the project should have
been completed “using reasonable speed and similar materi-
als and workmanship.” In other words, the ERAL Provision
paid for expenses incurred by the Airport Authority after a
loss event to reduce the amount of soft costs (in this case, bond
interest) for which Travelers would otherwise have been lia-
ble. This is a dollar-for-dollar reduction, and “[n]o deductible
applies to this Additional Coverage.”
The Airport Authority maintains that it incurred substan-
tial costs to reduce the period of delay in completion. We can
certainly believe it. After all, as noted above, the Airport Au-
thority managed to open the Midfield Terminal more than
three months before the opening date it had projected after
the Shoring Tower Incident. It opened just 44 days after the
pre-loss scheduled opening date, in spite of a construction
failure requiring thorough inspections and millions of dollars
in repairs. The Airport Authority submitted evidence that it

-- 19 of 29 --

20 No. 16-2675
“took measures and incurred costs in an effort to reduce the
period of delay caused by the Shoring Tower Incident, includ-
ing accelerating and resequencing the work.” It submitted
correspondence showing that Travelers had been hounding it
to make all efforts to keep the project on schedule. And the
Airport Authority submitted a detailed breakdown of its inci-
dent-related costs, including roughly $4 million that it classi-
fies as ERAL expenses.
Travelers argues, however, and the district court held, that
because the Airport Authority has no compensable soft cost
claim, it is entitled to no ERAL coverage. We believe this view
misunderstands the interaction between these two forms of
coverage. The ERAL Provision did not say that coverage
turned on whether Travelers actually paid out a soft cost
claim. Rather, ERAL coverage was to be triggered to whatever
extent the Airport Authority accelerated or otherwise ad-
justed the project (at added expense) so as to mitigate Travel-
ers’ soft cost liability. The sole reason the Airport Authority
cannot recover bond interest is because it completed the pro-
ject before the 90-day deductible period expired. How did it
accomplish this feat? A jury could find that it did so by incur-
ring additional costs for resequencing and accelerating the
project. This is precisely the situation in which ERAL cover-
age is appropriate—where, but for additional expenses in-
curred by the Airport Authority, Travelers itself would have
been on the hook for soft costs.
Travelers’ attempt to condition payment of ERAL ex-
penses on payment of soft costs would create perverse incen-
tives. A hypothetical illustrates the problem. If a loss event
would have ordinarily delayed opening day by 150 days, but
an insured managed to reduce the delay to just 100 days, the

-- 20 of 29 --

No. 16-2675 21
insured could recover ERAL expenses plus soft costs incurred
during the ten days following the expiration of the 90-day soft
cost deductible period. But if the insured worked even harder
and managed to reduce the delay to 90 days, then under Trav-
elers’ view, the insured would be entitled to neither any soft
costs nor any ERAL expenses. As Travelers would have it, the
greater the effort, the less the reward. Travelers’ rejoinder that
the insured is obligated under the policy to mitigate its dam-
ages holds no water. An economically self-interested insured
would have a powerful incentive to extend the delay period
to just beyond the 90-day window.
Parties may, if they wish, agree with eyes wide open to
contracts that create such seemingly perverse incentives or in-
efficiencies, but courts should require clear language before
we conclude they have done so. See Beanstalk Group, Inc. v. AM
General Corp., 283 F.3d 856, 860–61 (7th Cir. 2002) (rejecting
“blinkered literalism” that would produce nonsensical results
under contract), and quoting Rhode Island Charities Trust v.
Engelhard Corp., 267 F.3d 3, 7 (1st Cir. 2001) (“There is a long
tradition in contract law of reading contracts sensibly; con-
tracts—certainly business contracts of the kind involved
here—are not parlor games but the means of getting the
world’s work done. … True, parties can contract for prepos-
terous terms. If contract language is crystal clear or there is
independent extrinsic evidence that something silly was actu-
ally intended, a party may be held to its bargain, absent some
specialized defense.”); Dispatch Automation, Inc. v. Richards,
280 F.3d 1116, 1118–19 (7th Cir. 2002) (rejecting contract inter-
pretation that would have given employee software devel-
oper an incentive to “pull his punches, or to quit the company
if he thought he was on the brink of a breakthrough”). The
plain language of this insurance policy does not suggest that

-- 21 of 29 --

22 No. 16-2675
the parties agreed to such counter-intuitive terms as Travelers
argues here.
We conclude that the Airport Authority is entitled to bring
its ERAL claim before a jury. We express no view on the dollar
value of the claim: that will be for the jury to sort out. The jury
must also determine the post-loss date on which the airport
would have been completed “using reasonable speed and
similar materials and workmanship.” The Airport Authority’s
construction manager thought that date was February 22,
2009. However, Travelers’ damages consultant opined (based
on an alternative schedule prepared by Travelers’ structural
engineer) that the “theoretical date on which Opening Day
would have happened using reasonable speed and similar
materials and workmanship … would have been on 11/2/08.”
If Travelers’ consultant is correct, then the Airport Authority
would seem not to have any compensable ERAL claim,
since—regardless of any acceleration—it would have com-
pleted the project within the deductible window. But that dis-
pute cannot be resolved as a matter of law at summary judg-
ment or on appeal. It is a disputed question of fact.
III. Order on Travelers’ Motions to Exclude
After the summary judgment decision, the Airport Au-
thority’s sole remaining claim was through the General Cov-
erage Provision as construed narrowly by the district court.
Soft costs and ERAL expenses were off the table. The Airport
Authority had at one point alleged that it was still due nearly
$4 million in inspection costs, attributable mainly to work per-
formed by a firm called KCE Structural Engineers, P.C. After
the summary judgment decision, the Airport Authority rep-
resented that it would seek “approximately $2,422,233.03 net

-- 22 of 29 --

No. 16-2675 23
of the $432,600.00 already paid by Travelers for engineering
work.” It planned to proceed to trial on that claim.
Long before the district court ruled on summary judg-
ment, the Airport Authority had designated two hybrid
fact/expert witnesses to testify concerning, among other
things, the costs the Airport Authority incurred as a result of
the Shoring Tower Incident. One was Richard Potosnak, prin-
cipal in charge of Aviation Capital Management and Trans-
portation Consulting & Management, the entities that served
as the owner’s technical representative on the Midfield Termi-
nal project. The other witness was Mark Flandermeyer, pro-
ject manager for Hunt/Smoot, a joint venture that served as
construction manager on the project. While the parties’ cross-
motions for summary judgment remained pending, Travelers
moved to exclude substantial portions of opinion testimony
that it anticipated Potosnak and Flandermeyer would present
at trial. The district court then ruled on summary judgment
before the Airport Authority responded to those motions to
exclude. Those response briefs, as well as Travelers’ reply
briefs and the district court’s eventual exclusion order, nar-
rowly focused on the question whether Potosnak and Flan-
dermeyer could testify about KCE Structural Engineers’
billings and, in particular, about the portion of those billings
directly allocable to restoration of the damaged property. The
district court limited the scope of Potosnak’s and Flander-
meyer’s opinion testimony while at the same time requiring
the Airport Authority to prove its damages with expert testi-
mony—a burden the Airport Authority could not carry be-
cause it had designated no damages expert.

-- 23 of 29 --

24 No. 16-2675
The landscape of this litigation has now shifted, and the
triable issues and available damages have expanded. As dis-
cussed above, in addition to direct repair costs and related in-
spection costs, the Airport Authority may recover its ERAL
expenses, i.e., those expenses it incurred to reduce the soft
costs for which Travelers would otherwise have been liable.
The Airport Authority had no opportunity to address the tes-
timony and other evidence it planned to present in support of
its ERAL claim, and the district court did not evaluate the Air-
port Authority’s evidentiary basis for its ERAL claim. We
think it best to vacate the exclusion order for fresh considera-
tion in light of this opinion. On remand, the district court
should be willing to reconsider any aspect of the prior order.
The court may of course direct the Airport Authority to item-
ize whatever remaining expenses it plans to pursue, as well
as the evidentiary support for each expense. The court may
alternatively conclude that any remaining objections are bet-
ter resolved on a point-by-point basis at trial rather than
through a pretrial order.
While there is little to be gained from parsing all the de-
tails of the exclusion order and the parties’ many arguments
in relation to that order, we offer a few guideposts for remand.
In doing so, we keep in mind that evidentiary rulings are gen-
erally reviewed deferentially for abuse of discretion. See Grif-
fin v. Foley, 542 F.3d 209, 217–18 (7th Cir. 2008).
First, we agree with the district court that Potosnak and
Flandermeyer, both of whom have extensive personal
knowledge of the Midfield Terminal project and the Shoring
Tower Incident, may testify subject to the Federal Rules of Ev-
idence concerning the facts they learned through their work
on the project, including facts relating to the costs the Airport

-- 24 of 29 --

No. 16-2675 25
Authority incurred in relation to the incident. Much of this
testimony would likely qualify as percipient/factual or lay
opinion testimony. To the extent the testimony requires spe-
cialized knowledge, the Airport Authority identified
Potosnak and Flandermeyer as hybrid fact/expert witnesses
and filed disclosures and summaries pursuant to Federal Rule
of Civil Procedure 26(a)(2)(C).
Subject again to the Federal Rules of Evidence, Potosnak
and Flandermeyer may also testify concerning KCE’s inspec-
tion services, as well as that portion of KCE’s total billings al-
locable to project restoration following the Shoring Tower In-
cident—but only to the extent that these witnesses acquired
relevant personal knowledge while performing their project
duties. We do not think that, simply because the Airport Au-
thority did not explicitly refer to apportionment testimony in
its Rule 26(a)(2)(C) disclosures, Potosnak and Flandermeyer
are therefore barred from presenting such testimony.
The disclosures revealed that both witnesses would testify
about the “costs incurred due to the Shoring Tower Incident”
and, specifically, about the Airport Authority’s “Schedule of
Outstanding Construction Costs.” Travelers had ample op-
portunity to depose these witnesses about their knowledge of
KCE’s services. Further, from the outset of this litigation, the
Airport Authority had maintained a broad view of the cover-
age to which it was entitled. Only after the district court ruled
on summary judgment did the Airport Authority realize its
litigation strategy was no longer viable.
We do not fault the Airport Authority for what might oth-
erwise be viewed as an eleventh-hour reconfiguration. After
all, if it had prevailed on summary judgment, it would have
had no reason to put on testimony directed narrowly to

-- 25 of 29 --

26 No. 16-2675
whether KCE’s costs—as the district court put it—“related
solely to reasonably restoring the property to its condition be-
fore the Shoring Tower Incident.” Indianapolis Airport Author-
ity, 2016 WL 2997506, at *10.
Travelers chides the Airport Authority for failing to pro-
duce full-fledged expert reports under Rule 26(a)(2)(B). The
Airport Authority was not required to produce such reports
for its hybrid witnesses. See Fed. R. Civ. P. 26 advisory com-
mittee’s note to 1993 amendment subdiv. (a)(2) (“The require-
ment of a written report in paragraph (2)(B) … applies only to
those experts who are retained or specially employed to pro-
vide [expert] testimony … or whose duties as an employee of
a party regularly involve the giving of such testimony.”);
Downey v. Bob’s Discount Furniture Holdings, Inc., 633 F.3d 1, 6
(1st Cir. 2011) (witness whose opinion testimony arose “not
from his enlistment as an expert but, rather, from his ground-
level involvement in the events giving rise to the litigation”
fell “outside the compass of Rule 26(a)(2)(B)”); see also Amer-
ican Property Construction Co. v. Sprenger Lang Foundation, 274
F.R.D. 1, 4–5 (D.D.C. 2011) (construction contractors could tes-
tify as hybrids concerning information they obtained and
opinions they formed while performing construction tasks);
Beechgrove Redevelopment, LLC v. Carter & Sons Plumbing, Heat-
ing & Air-Conditioning, Inc., Civ. No. 07-8446, 2009 WL 981724,
at *6 (E.D. La. Apr. 9, 2009) (architect, engineer, and account-
ants involved in renovation project could testify as hybrids
based on their factual observations and professional analyses
rendered during project).
Potosnak and Flandermeyer do not have carte blanche to
testify at will about KCE’s billings. As hybrid fact/expert wit-
nesses, they must testify from the personal knowledge they

-- 26 of 29 --

No. 16-2675 27
gained on the job. That personal knowledge requirement may
limit their testimony. Both witnesses suggested during their
depositions that they may not possess the requisite
knowledge (or that KCE’s invoices may be so vague as to
make meaningful apportionment impractical), although some
evidence indicates that Potosnak apportioned KCE’s billings
as early as 2008. The district court certainly may preclude
these witnesses from testifying beyond the scope of facts they
learned and opinions they formed during the course of their
project duties. That said, the Airport Authority need not rely
exclusively on Potosnak and Flandermeyer to prove its case.
Simply because these witnesses may not be qualified to testify
as to the ins and outs of insurance coverage, it does not follow
that they are barred from presenting relevant testimony as to
costs incurred and what those costs represent, provided that
they know. 6
Next, we agree with the district court that Potosnak and
Flandermeyer may testify regarding “facts that may contra-
dict the facts underlying Travelers’ experts’ opinions.” Indian-
apolis Airport Authority, 2016 WL 2997506, at *8. These wit-
nesses may also identify those aspects of Travelers’ experts’
opinions with which they disagree, provided that their disa-
greement is factual in nature and arises from their experience
6 We agree with the district court that Potosnak may not testify about
the so-called “KCE Model” (a computer simulation model) or “KCE Doc-
ument” (a diagram plotting out the locations of KCE’s inspections).
Potosnak had nothing to do with the creation of the KCE Model. And
while he created the KCE Document, he did so years after he completed
his services on the project, using KCE’s inspection reports as his source
material. At minimum, the district court did not abuse its discretion in
excluding Potosnak’s testimony about these exhibits, which is more in the
nature of retained expert testimony rather than hybrid testimony.

-- 27 of 29 --

28 No. 16-2675
on the Midfield Terminal project (as opposed to information
they learned solely through the claim adjustment process or
in litigation). The district court is entitled to police this dis-
tinction and to preclude Potosnak and Flandermeyer from
testifying as if they were retained experts. But a strict rule pre-
venting these witnesses from identifying any factual disputes
or contradictions—particularly where Travelers is on notice
that such disputes exist—would further confound an already
complex case.
Finally, we respectfully disagree with the district court’s
ruling that the Airport Authority must put on expert testi-
mony to prove that its outstanding costs should be covered
by the insurance policy. Expert testimony might be helpful, of
course. The Airport Authority may come to regret its decision
not to retain a damages expert, particularly if Potosnak and
Flandermeyer prove unable to identify reliably the subset of
KCE’s billings attributable to the Shoring Tower Incident. But
neither Travelers nor the district court has identified any prin-
ciple of Indiana or federal law requiring a damages expert in a
case like this one. On the contrary, Indiana courts have
acknowledged that damages may be “proven by both expert
and non-expert testimony.” Sony DADC U.S. Inc. v. Thompson,
56 N.E.3d 1171, 1181 (Ind. App. 2016). Federal courts rou-
tinely permit the “owner or officer of a business to testify to
the value or projected profits of the business, without the ne-
cessity of qualifying the witness as an accountant, appraiser,
or similar expert.” Fed. R. Evid. 701 advisory committee’s note
to 2000 amendments; see also Izynski v. Chicago Title Ins. Co.,
963 N.E.2d 592, 599 (Ind. App. 2012) (expert testimony not re-
quired in case involving breach of real estate contract or con-
demnation proceedings; landowner may testify regarding
value of land). That logic extends to witnesses like Potosnak

-- 28 of 29 --

No. 16-2675 29
or Flandermeyer, who were deeply involved in the events in
question.
We accordingly AFFIRM IN PART and REVERSE IN
PART the district court’s order on summary judgment; we
VACATE the district court’s order on Travelers’ motions to ex-
clude; and we REMAND this case for further proceedings
consistent with this opinion.

-- 29 of 29 --