A $27 million fire insurance fight between Maxus Metropolitan and Travelers Property Casualty has just given commercial insurers plenty to think about.
Back in September 2018, a fire tore through the Metropolitan, a multi-building apartment complex in Birmingham, Alabama. One building – Phase 6 – was completely destroyed, while others suffered varying degrees of damage. At the time, Maxus Metropolitan, LLC had a policy with Travelers Property Casualty Company of America, covering up to $35 million for “direct physical loss . . . or damage” and up to $5 million for lost business income.
Maxus notified Travelers of the fire the same day it happened. But Travelers did not reach a coverage determination until almost two months later, after Maxus filed a consumer complaint with the Alabama Department of Insurance. Travelers advanced $1 million for initial cleanup and emergency repairs, later increasing its total payout to $3,519,607.19. However, Travelers denied coverage for certain remediation costs, particularly those related to soot and water damage in Phases 1-5.
Maxus hired Forensic Building Science (FBS) to inspect the property. FBS found visible soot stains throughout Phases 1-5 and recommended extensive remediation, which included evacuating all residents and employees. Maxus forwarded the FBS report to Travelers, who did not immediately respond. Travelers later relied on its own industrial hygienist, who found no odor or stains indicating smoke infiltration. Maxus, concerned by FBS’s findings, proceeded with remediation after notifying Travelers.
Maxus sued Travelers in Missouri state court for breach of contract and vexatious refusal to pay. The case was removed to the Western District of Missouri. At trial, Travelers argued that microscopic soot did not constitute “direct physical loss or damage” under the policy and that water damage was not caused by the fire or did not occur during the policy period. Maxus asserted that both soot remediation and water damage from leaks caused by burning embers were covered under the policy.
The jury sided with Maxus, awarding $27,330,263.13 in damages, $546,905 for vexatious refusal to pay, and “reasonable attorneys’ fees.” The district court also granted prejudgment interest.
On Aug. 28, the Eighth Circuit Court of Appeals affirmed most of the district court’s rulings, including the finding that microscopic soot could constitute “direct physical loss or damage” if it rendered the property unusable or uninhabitable. The court also upheld the jury’s finding that Travelers’ handling of the claim was vexatious, citing evidence of inadequate investigation and failure to communicate coverage decisions. However, the appellate court vacated the prejudgment interest award and remanded for recalculation based on when Maxus demanded payment from Travelers, rather than the dates invoices were paid.
The insurance policy defined covered loss as “direct physical loss of or damage to” property and included soot in a list of pollutants. The court’s decision noted that, under Missouri law, physical contamination such as soot can support a finding of “direct physical loss” if it renders the property unusable or uninhabitable.
For insurance professionals, this case is a reminder that the details matter – especially when it comes to policy wording, claim investigations, and communication with policyholders. The outcome also highlights the risks of letting disputes drag on, and the potential costs when courts decide that an insurer hasn’t acted promptly or fairly.
In the end, the Maxus-Traveler saga is more than just a big-dollar verdict. It’s a real-world lesson in how commercial property claims can spiral, and why insurers need to be ready for the unexpected – whether it’s a fire, a stubborn claim, or a court’s take on what “damage” really means.
