Flood-related lawsuits linger ahead of Opry Mills' opening

Sunday, January 1, 2012 at 10:05pm

As floodwaters overtook Nashville in May 2010, news helicopters transmitted stunning images of an engulfed Opry Mills Mall — Mother Nature’s sucker punch to Music City’s outlet stores.

Inside the mall, a sad soup of ruined merchandise and Cumberland River waters flowed throughout the expansive facility. The place was wrecked. Electrical boards, walls and even exotic fish species from the Aquarium Restaurant perished. (Although, according to then-WKRN reporter Teresa Weakley, two flesh-munching piranhas were thriving in the mall floodwaters. The restaurant later disputed that claim.)

Opry Mills Mall will reopen on March 29, nearly 700 days after it closed amid uncertainty. According to mall officials, the reopening will bring more than 3,000 jobs back to Nashville. Lenders Helaba Bank and Nord/LB funded the mall’s reopening.

The economic jolt to the community will be substantial. Opry Mills totaled $279 million in sales in 2009, which generated roughly $26 million in sales tax in addition to more than $4 million in annual real estate tax.

But beneath all the celebration and applause that will accompany the return of Opry Mills and its economic boon, there lies an ongoing multimillion-dollar international lawsuit that sheds light on what’s been going on while the mall has sat mostly vacant.

Just five months after the flood in 2010, Gaylord Opryland Resort and Convention Center completed a speedy rebuilding process, and the sprawling hotel complex held a grand opening ceremony. Several days later, Simon Property Group, which owns Opry Mills, issued a statement on the mall’s progress.

“We have already spent $50 million to clean up the mess left by the flood water, but unfortunately, because of the failure of various insurance companies to live up to their contractual duties and fund this loss, there is no money left to complete the reconstruction work,” the statement read.

The conflict between Opry Mills and its insurers became public in September 2010, when Simon filed a lawsuit in Davidson County Chancery Court contending it is owed an additional $150 million from 16 insurers. The insurance companies, from as far away as the United Kingdom and Japan, think differently.

According to 14 insurance companies represented by Nashville attorney John R. Jacobson, Opry Mills was clearly located in a floodplain and is thus entitled to only the $50 million it received in coverage.

Federal Emergency Management Agency maps from 2002 show a large portion of Opry Mills is located in zone “AE,” which designates a 100-year floodplain. However, Simon contends that the insurance policy represented to them didn’t include Opry Mills on a list of “High Hazard Flood Zone” properties.

“The parties to the Policies agreed and understood when they entered into the Policies that the only locations subject to the $50 million sublimit … would be specifically listed in the Policies,” Simon said in its third amended complaint filed on Sept. 19, 2011.

In court filings last month, several of the insurers insist that a Simon representative was aware — or should have been aware — of the $50 million limit. At least five of the insurance companies used that reasoning to request a summary judgment that would remove them from the lawsuit.

A key player in this case might be Aon — the broker that set up Opry Mills’ multiple insurance company deal. According to Simon, its officials primarily communicated with Aon, which specifically assured them that $200 million would be available in the event of a flood.

Even after the flood in May 2010, Simon contends, Aon sent an email confirming the “applicable limit of liability” for the flooding was $200 million. Then, on July 30, the insurers collectively sent a letter to Simon, citing the $50 million limit.

Although Simon is still targeting all of the insurers, a recent court filing by Essex Insurance Co. places Aon, the broker, in the crosshairs.

In a punchy answer to Simon’s complaint, Essex defends itself against all claims and also enters a cross-claim for indemnity, contribution and negligence against Aon. Zurich American Insurance also entered a similar cross-claim.

According to Essex, the “certificates of insurance” issued to Simon “(do) not accurately reflect the terms and conditions of the coverage relating to Opry Mills that was in effect at the time they were issued.”

“Aon further breached its duty to use reasonable skill, care and diligence by misstating the flood coverage for Opry Mills as a $200 million limit rather than the $50 million sublimit agreed to and authorized by Essex,” the cross-claim reads.

Simon officials accuse the insurers and Aon of misleading them, charging that the miscommunication between the broker and insurers resulted in a violation of the Tennessee Consumer Protection Act.

“Alternatively, if it is finally determined that less than the $200 million in flood coverage limit is available under the Policies … then the Insurers’ and Aon’s representations to the contrary … amounted to an unfair or deceptive practice,” Simon’s complaint reads.

The TCPA provides three times actual damages for a violation — in this case, $450 million.

Aon officials responded to Essex and Simon by claiming they aren’t wholly responsible for the mix-up. According to their answer to the cross-claim by Essex, they mention that the insurers “did not object to any certificates of insurance prior to the flooding.” They also say the insurers had access to the Opry Mills policy — and never spoke up about a potential discrepancy.

All sides of the tangled case either declined to comment 
or didn’t return requests for comment on the ongoing lawsuit.

Opry Mills general manager Jad Murphy did issue a statement in anticipation of the mall’s reopening.

“We are thrilled to be on schedule to reopen Opry Mills on March 29, starting with our official ribbon-cutting, followed by a series of celebratory events that run through early May,” Murphy said.

In the meantime, the complex, multifaceted court battle drags on. A three-week jury trial is set for July 9 — and tens of millions of dollars are at stake.






Could Opry Mills have reopened sooner?

Opry Mills is scheduled to reopen on March 29, but one of the insurers the mall is suing claims they could have been open sooner.

In one of their filings, Essex Insurance Co. accuses Simon Property Group and the Opry Mills Limited 
Partnership of failing to mitigate their losses.

Essex said Simon engaged in unnecessary construction and failed to seek alternative financing and/or sources of funds to make much-needed repairs. In addition, Essex makes reference to a refused interim proposal by the insurers “which would have given Plaintiff’s access to funds and a more expedient resolution of this matter.”

Simon declined to comment on the lawsuit, and Essex’s lawyer didn’t respond to a request for comment.

Based on the numbers provided by the mall, if Opry Mills had reopened in 2010, six months before the March target date, it could have brought an additional $13 million in local sales tax. That would have resulted in a 5 percent boost in Metro’s $269 million collected 
in sales tax last year.

Where did the money to rebuild come from?

The financing for Opry Mills’ rebuild came primarily from commercial lender Helaba Bank.

The German company transferred a $120 million deed of trust to Opry Mills two weeks before mall officials announced the reopening, according to the Nashville Post.

Helaba also issued a $280 million loan to Opry Mills in 2007; that debt is secured by certain real estate property and other assets of Opry Mills. Helaba is a loss payee under the insurance policies at the center of lawsuit, meaning they are entitled to some of the claim payments.


4 Comments on this post:

By: Kosh III on 1/2/12 at 5:39

Insurance companies are doing what they do best: denying claims.

By: Left-of-Local on 1/3/12 at 9:30

DAMN it is hard to pick a bad guy when the idiots at Simon and the crooks at insurance companies are involved!

But then, the moral of the story is what it always has been the arrogant, greedy jackasses at Gaylord didn't build up high enough retention. The best outcome of all of this would be to turn an eye toward Gaylord for their share of negligence.

Still a contest of slimy corporate lizards, though...

By: whatsit2u on 1/3/12 at 2:46

Retention??? It didn't have anything to do with Gaylord under retaining their runoff. They actually over retained because they couldn't pump the water out fast enough.

By: RTungsten on 1/3/12 at 5:14

@ Left-Of-Local:

You know, Gaylord sold the mall a few months before the flood. If the new owners were so worried, they could have built the walls higher. They did not do that. So, yeah....blame Gaylord...that makes total sense. While we are at it, can we blame Gaylord for Chris Johnsons' lack of productivity this year? What about blaming them because my plants died in October because of frost. GAYLORD!! YOU OWE ME NEW PLANTS!!