If you’re blue and you don’t know where to go to
Why don’t you go where fashion sits,
Puttin’ on the Ritz.
Different types who wear a daycoat, pants with stripes
And cut away coat, perfect fits,
Puttin’ on the Ritz.
Dressed up like a million dollar trouper
Trying hard to look like Gary Cooper (super duper)
Come let’s mix where Rockefellers walk with sticks
Or umbrellas in their mitts
Puttin’ on the Ritz

               – Irving Berlin

I primarily work in the firm’s Tampa office, however earlier this week I braved the cold weather and traveled to our Red Bank, New Jersey office. Our firm represents numerous policyholders whose homes and businesses were damaged as a result of the wind and floods associated with Hurricane Sandy. If you are not familiar with Red Bank, our office is conveniently located across the street from a Marriott hotel where I stayed during my visit. During dinner one night I was discussing with Chip Merlin and Ashley Smith, who also were in Red Bank for a few days, how the Marriott operates and franchises hotels such as the Ritz-Carlton.

I imagined that the Ritz must have been involved with a property insurance claim as a result of a hurricane, windstorm or a flood at some time. When Hurricane Katrina made landfall in New Orleans, the Ritz-Carlton-New Orleans was in the process of renovation and suffered damage to the EIFS (exterior insulating finishing system) window system and terra cotta façade as result of the storm.1 In this $3.3 million coverage dispute, plaintiff, WH Holdings, LLC, the owner of the Ritz-Carlton, and several of its excess insurers, claimed that the contractor’s insurer, Ace American Insurance Company (“Ace”), should cover damage to the hotel caused by Hurricane Katrina as the contractor performing the renovation work was required under its construction contract to purchase and maintain a builder’s risk policy to cover such damage. In response, Ace argued that the owners’ claims against it were barred because the builder’s risk policy covered only loss or damage to the repair work being done by the contractor and not damage to the existing hotel building.

The Court was faced with the issue of whether the owner was an additional insured under the policy issued by Ace to the contractor and whether the contractor was contractually obligated to insure the owner such that it became an insured on the policy. Because of the ambiguous nature of the general conditions to the construction contract, the Court considered extrinsic evidence to examine how the parties had performed the contract prior to the lawsuit being filed. Specifically, the Court analyzed Section 11.1.5(g) of the general conditions2 and determined that Section 11.1.5(g) shifts the builder’s risk obligation to the owner when renovation work is involved. Here, while the owner paid significant premiums to the contractor for builder’s risk, it was trying to enforce an obligation against Ace, not the contractor.

In its ruling that Ace is not obligated to recognize the owner as a named insured on the policy, the Court interpreted the general conditions as not intending for the contractor to be responsible to insure the owner’s interest in the renovation work. Therefore, the Court held that the owner had not established that the general conditions required the contractor to procure builder’s risk coverage for construction work that constituted renovations to an existing structure.

As a final note, speaking of the Ritz, for the past few years our firm has held its annual attorney retreat at the Ritz-Carlton in Sarasota. As you can see from this year’s Great Gatsby theme night, it is not only a weekend of education as to the latest developments in property insurance coverage law, and professional growth, but also a celebration of our firm’s success and dedication in vigorously representing policyholders.

Shane Smith Puttin' on the Ritz

1 WH Holdings, LLC, et al v. Ace American Insurance Co., 2013 WL 2286107, Civil Action No. 07–7110 (E. D. La. May 23, 2013).
2 WH Holdings, footnote 9:
Section 11.1.5(g) states as follows:
g. Builder’s Risk Insurance Limits
Full Replacement Cost Value on the Work being installed as described in the Construction Contract
This policy shall name as an [sic] named insured the Owner and any other entity required by the Contract between the Contractor and the Owner.
This policy shall waive subrogation against Owner and any other Owner related entity whether or not required by the Contract between the Contractor and the Owner.
This coverage will be placed by the Contractor on an “All Risk” replacement cost basis for the full value of construction unless the construction is an addition or renovation to an existing structure. If this construction is an addition or renovation than [sic] the Owner shall be responsible for providing this coverage and will add the Contractor and its subcontractors and sub-subcontractors as additional insureds and waive subrogation against the Contractor and its subcontractors and sub-subcontractors as regards any structures being built or renovated and already existing at the site.