The 5th Circuit Court of Appeals has revived a complaint by Southwest Airlines over claims denied by Liberty Insurance Underwriters associated with a massive computer failure that disrupted travel for nearly a half-million people.
Weeks before the July 2016 outage, Southwest had purchased a cyberrisk policy with “system failure” coverage from American International Group Inc., the ruling said. It included excess coverage of up to $10 million that would be implicated once Southwest’s losses reached $50 million, it said. The airline said it incurred $77 million in losses from the system failure and canceled flights, it said.
While AIG and several other excess carriers paid their limit in claims, Liberty denied them, challenging five categories of claimed losses that, if deducted, would not have added up to losses of $50 million.
In the subsequent trial, the court concluded that Southwest’s costs were not caused by the system failure but rather were the result of “various and purely discretionary customer-related rewards programs, practices and market promotions.” It also concluded that coverage was barred under the policy exclusions and that Southwest’s bad faith claims failed, the appellate ruling said.
The appellate court said its analysis led it to conclude only that the district court should not have granted summary judgment as a matter of law on the basis of the policy’s main insuring provision.
In addition, the court ruled that the trial court’s interpretation of exclusions was so narrow that coverage would be virtually “illusory” under those terms, it said.
The trial court also should not have granted summary judgment in favor of Liberty because Southwest satisfied its burden of showing that a genuine dispute existed as to whether Liberty had a reasonable basis to deny Southwest’s claims.
“Southwest is pleased with the Fifth Circuit’s decision in this case, and we’ll continue to pursue our claims in the trial court,” the airline said in an e-mail.
A Liberty spokesman said the company does not publicly discuss matters involving litigation.