In the first discussion about delay in completion coverage, Delay In Completion Losses Under A Builders Risk Policy, I gave a general overview of the coverage. In this post, I’ll discuss a more detailed focus on the topic.
Recently, a New York trial court issued an order in a case involving delay in completion coverage under a builders risk policy where damage was sustained during Hurricane Sandy.1
The policy contained a limit of $115 million in coverage with sub-limits of $108 million for physical damage and $7 million for delay in completion. The policy had an aggregate limit of $5 million for flood losses subject to its own deductible of the greater of $250,000 or 5% of the loss.
The issue involved whether the significant delay in completion damages sustained from Sandy were limited to the flood aggregate limit of $5 million and it’s deductible. The policyholder argued that the flood limit of $5 million only applied to physical damages from flood and not "downstream" financial losses like delay in completion. Zurich argued that if flood causes delay in completion, like what happened in the case, the policyholder can only recover the $5 million flood aggregate limit.
The court held that since the policy defines flood as "all loss or damage arising during flood," it clearly did not exclude non-physical losses like delay in completion from the flood aggregate limit. The court noted that the delay in completion endorsement clearly stated that it does not alter the sub-limits in the policy. The court held that a loss that would not have occurred but for a flood is subject to the $5 million aggregate limit without regard to the type of loss suffered. The court also noted in its holding that no portion of the delay in completion endorsement states that the delay in completion sublimit of $7 million is not subject to the flood $5 million aggregate limit. Other policy sub-limits contained language they were not subject to aggregate limits within the policy.
The court held that the policyholder was entitled to recover the total of $5 million for flood damages, physical damages and the economic delay in completion losses sustained in Sandy, since they stemmed from the flood. The court ruled that the flood deductible was also applicable to the loss.
As we often discuss, the words in the policy matter greatly and can often be an intricate maze of limiting and excluding language. This case involved a situation where the policyholder was entitled to a large amount of recovery, but the damages were much greater. Consulting with experienced policyholder representatives even before a loss can be helpful to ensure adequate coverages are in place for the risk exposure. Policy reviews are important since the policies are bound volumes of fine print. Andy Rooney once said; "nothing in fine print is ever good news."