Shareholder Charles Rocco, Partner Dawn Brehony, and Associate Christina DiGiacomo achieved victory in a complex builders’ risk arbitration before the American Arbitration Association (“AAA”). The dispute arose from a $17.5 million fire loss at a high school in Connecticut during a roof replacement project. The roof replacement project was not declared by the claimant. The claimant sought coverage under a master builders’ risk policy, arguing that undeclared projects remained covered up to the policy sublimit.
Foran Glennon employed R-34 of the AAA Commercial Rules, which allows for expedited summary judgment, to obtain a full dismissal of the claim against its insurer client. The Panel held that the policy’s reporting and declaration requirements were clear, unambiguous, and conditions precedent to coverage. As the project was never reported or declared before the loss, the Panel found there was no coverage as a matter of law.
The central issue in the case was the interpretation of the policy’s reporting and limit-of-liability provisions. The policy’s reporting provision provided, in relevant part:
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8. Reporting provisions
At Project Startup – within thirty (30) days of project start up, the Named Insured shall report to the Company the total estimated value of all property to be installed including, but not limited to all wages, expenses, materials, supplies, equipment and such other charges, all whether provided by the owner, contractor or others, which will become a part of or will be expended in the insured project.
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Further, the policy’s Limit of liability provision provided, in relevant part:
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6. Limit of liability
This Company shall be liable for the actual Completed Value (including increases or decreases in the estimated contract costs) of each individual INSURED PROJECT* insured hereunder but not exceeding the Limits of Liability set forth below and always subject to the Sublimits of Liability and Annual Aggregate Sub-Limits of Liability set forth below unless any of the foregoing are specifically amended on individual Certificates of Insurance to this Master Builders Risk Policy.
6.a. Limit of liability
1. $100,000,000 in any one OCCURRENCE* for any project when total estimated Completed Value is equal to or less than $100,000,000; except
2. $5,000,000 for any one insured project including existing property combined and not declared
3. $2,000,000 for any one project which includes in whole or in part joisted masonry or wood frame structures or other structures of mixed construction incorporating frame construction including existing property combined and not declared.
Any project having total estimated Completed Value greater than the amount stated in (1), (2) or (3) above must be referred to the Company consideration and acceptance at terms to be agreed prior to attachment under this program.
Total estimated Completed Value shall mean the total estimated contract value of all property to be insured including, but not limited to, all wages, expenses, materials, supplies, equipment, and if applicable existing structures and such other charges, all whether provided by the owner, contractor or others, which will become a part of or will be expended in the project plus the amount, if any, of SOFT COSTS*, RENTAL INCOME* or GROSS EARNINGS* to be insured.
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In its Rule 34 Motion, Foran Glennon argued that the project was not covered as the claimant did not comply with the policy’s reporting requirements. First, the policy’s reporting provision required all projects to be declared within 30 days of project startup. This obligation was a condition precedent to coverage. As such, for coverage to apply, any projects must be declared within 30 days of startup. Second, and separately, the claimant was required to refer the roof project to the client for consideration and acceptance for coverage to attach. Provision 6.a. requires the claimant to refer any project with an estimated Completed Value exceeding $5 million for consideration and acceptance prior to attachment under the policy. Under provision 6.a., estimated “Completed Value” includes existing structures. The roof project’s estimated Completed Value — including existing property — exceeded $5 million. As such, Foran Glennon argued that, under provision 6.a., the claimant was required to refer the project to the client for consideration and acceptance prior to attachment under the policy.
In its opposition paper, the claimant argued that because the referral paragraph of 6.a. is written in the disjunctive (“greater than the amount stated in (1), (2) or (3) above”), only projects exceeding option (1), $100,000,000 required referral. Since the roof project’s estimated Completed Value did not exceed $100,000,000, Claimant contended no referral was necessary for coverage to attach.
Foran Glennon responded that the claimant’s interpretation was unreasonable because it ignored the express inclusion of options (2) and (3) in the referral provision. Under the claimant’s reading, projects with estimated Completed Values exceeding options (2), $5,000,000, or (3), $2,000,000, including existing property, would never have to be referred. This would render the reference to (2) and (3) in the referral paragraph meaningless.
The Arbitration Panel unanimously agreed with Foran Glennon’s interpretation, granting its Rule 34 Motion and dismissing the $5 million claim in its entirety. The Panel held that the policy unambiguously required projects to be reported within 30 days of startup and that failure to comply with those reporting obligations precluded coverage. The Panel further concluded that the claimant’s interpretation would improperly nullify the policy’s reporting provisions.
Charles, Dawn, and Christina concentrate their practice in first-party property insurance disputes. Their experience includes a full array of first-party property insurance matters, including bad faith claims, builders’ risk claims, and construction and design defect claims.