One of the fundamental principles of insurance is that policyholders should take reasonable steps to prevent loss. So, what happens when the policyholder does exactly what it is supposed to do, successfully prevents damage, and the insurer then argues that there is little or no coverage because the damage never occurred? This unusual situation is presented in Florida East Coast Holdings Corporation v. Lexington Insurance Company, 1 a recent Eleventh Circuit decision involving Hurricane Irma and a railroad that took extraordinary measures to protect its property before the storm struck.

Florida East Coast Railway knew Hurricane Irma posed a serious threat to its operations. As part of its longstanding hurricane preparedness procedures, it dispatched crews to remove approximately 600 railroad crossing gates before the storm arrived. The company understood that hurricane-force winds could destroy the gates, turn them into dangerous projectiles, cause significant property damage, and create lengthy business interruptions. The preventative efforts were successful. The railroad avoided the catastrophic losses it feared.

The railroad spent more than $2 million removing, storing, and reinstalling the gates. It also suffered more than $3 million in lost revenue because trains had to operate at greatly reduced speeds while the crossing gates were offline. In total, the claim exceeded $5.6 million.

The insurers denied the claim. The dispute quickly became a battle over policy language. Florida East Coast argued that its expenses and lost revenue were covered because it incurred those costs to reduce losses that otherwise would have occurred. The insurers countered that the claim fit only within the policy’s “Protection and Preservation of Property” provisions, which specifically addressed expenses incurred to prevent impending damage. On that issue, the Eleventh Circuit largely sided with the insurers.

The court reasoned that the policy contained specific provisions designed for situations where an insured takes action to protect property from an imminent threat. Because Florida East Coast suffered no actual physical damage to the crossing gates, the court concluded that the broader business interruption and loss-reduction provisions relied upon by the railroad did not apply. Instead, the preservation provisions were the proper source of coverage.

Had the case ended there, the railroad would have lost. The insurers argued that even though no property was damaged, a special Named Windstorm deductible should be calculated as if all of the protected crossing gate locations had suffered damage. Using the railroad’s statement of values, the insurers calculated a deductible exceeding $10.9 million. Since the claim was only about $5.6 million, the insurers maintained that nothing was owed.

The trial judge accepted that argument. On appeal, the Eleventh Circuit did not. The appellate court focused on a critical phrase in the deductible provision: “5% of property values at locations damaged from and as respects Named Windstorm.” The problem for the insurers was obvious. There were no damaged locations. The railroad’s mitigation efforts worked. No crossing gates were destroyed. No locations suffered the anticipated property damage.

The court refused to engage in the legal fiction that damaged locations existed when everyone agreed they did not. Because there were no damaged locations from which to calculate the enhanced deductible, the court held that the applicable deductible was the policy’s $750,000 Railroad Operations deductible rather than the insurer’s proposed $10.9 million figure.

The ruling transformed the case from a complete loss for the policyholder into a substantial recovery. There are several important lessons for policyholders, public adjusters, risk managers, and insurance claims professionals. First, mitigation efforts remain critically important. The railroad’s actions almost certainly saved both itself and its insurers millions of dollars in potential damage and business interruption. Second, preservation and protection clauses deserve far more attention than they often receive. These provisions may become the central coverage grant when a policyholder successfully prevents damage rather than suffers it. Third, deductible language matters. The phrase, “locations damaged,” became the difference between a multimillion-dollar recovery and no recovery at all.

Finally, courts are often willing to enforce insurance policies exactly as written. This principle cuts both ways. In this case, it prevented the policyholder from stretching certain coverage provisions beyond their alleged intended purpose. But it also prevented the insurers from rewriting the deductible language to fit a scenario the policy never contemplated.

The irony is that Florida East Coast did exactly what every insurer hopes a policyholder will do before a catastrophe. It acted prudently, protected its property, reduced the ultimate loss, and avoided unnecessary damage. The Eleventh Circuit’s decision appropriately recognizes that insurers should not be allowed to pretend damage occurred simply to eliminate coverage for successful loss prevention efforts.

Thought For The Day

“I deem it of first importance that the Nation should possess a suitable railroad system.”

Abraham Lincoln

1 Florida East coast Holdings corp. v. Lexington Ins. Co., No 24-11479 (11th Cir. May 29, 2026). See, Policyholder Brief and Lexington Brief.