A tornado destroyed a massive Arkansas warehouse, sparking a court battle over underinsurance and lease obligations – raising key issues for commercial insurance professionals.
Fort Worth Partners, LLC leased a 200,000-square-foot warehouse in Springdale, Ark., to Nilfisk, Inc., a subsidiary of Nilfisk Holding A/S. The lease required Nilfisk to maintain “all-risk” commercial property insurance covering the full replacement cost of the building, excluding the cost of footings, foundations, and other structures below grade. Nilfisk was also responsible for property-related expenses, including taxes, insurance, maintenance, and repairs.
On March 30, 2022, a tornado destroyed the warehouse. At the time, Nilfisk’s insurance coverage was $5,149,999, which was below the building’s appraised value of $10.5 to $11.1 million. Fort Worth Partners received annual certificates of insurance from Nilfisk but did not object to the coverage amount or exercise its right under the lease to purchase additional insurance and charge Nilfisk.
Fort Worth Partners sued Nilfisk for breach of contract, seeking damages for the full replacement cost. Both sides presented expert witnesses, with replacement cost estimates ranging from $9.4 million to $27.7 million. Nilfisk argued the claim was barred by the statute of limitations, that the lease provision was unenforceable, and that the damages sought were excessive.
The district court found Nilfisk had breached its insurance obligation under the lease and awarded damages to Fort Worth Partners, including costs for demolition, rebuilding, electrical work, overhead, and lost profits. The court excluded damages for the building’s foundation, citing the lease’s exclusion of “footings, foundations and other structures below grade.”
Nilfisk appealed, challenging the timeliness of the claim, the application of the doctrine of avoidable consequences, and the damages calculation. Fort Worth Partners cross-appealed, seeking recovery for foundation damages and a higher attorney’s fee award.
On Oct. 17, 2025, the Eighth Circuit affirmed most of the district court’s findings. The appellate court held that Nilfisk’s failure to maintain adequate insurance constituted a breach of the lease and that Fort Worth Partners’ claim was timely, as each deficient insurance policy represented a separate breach. The court also agreed that the lease’s exclusion for “footings, foundations and other structures below grade” precluded recovery for foundation damages.
However, the Eighth Circuit reversed and remanded the portion of the damages award related to unrebutted costs, finding that the district court’s explanation was insufficient and required further factual findings.
The case remains pending for further proceedings on specific damages, but it highlights the importance of clear insurance requirements in commercial leases and the consequences of underinsurance for both landlords and tenants.
