A recent Travelers case seems to be an example of an insurer allowing its attorneys to argue anything to win. If you are an owner or developer and require your contractor to purchase a builders risk policy with soft costs and loss of rents overage, whatever you do, do not allow the contractor to purchase a Travelers insurance policy. Travelers will allow its attorneys to argue that your status as an additional named insured does not provide you coverage for the soft cost and loss of rents coverage.

The federal court outlined the facts and ruling at the beginning of the decision: 1

This case is part of a lengthy dispute involving the Vue Project, an apartment complex at 10545 Olive Street Road in St. Louis County owned by plaintiff BCC Partners, LLC. Plaintiff contracted with builder Ben F. Blanton Construction, Inc. to construct the apartment complex. As part of that contract, Blanton was required to obtain insurance, including the policy with defendant Travelers Property Casualty Company of America at issue here.

During construction, a retaining wall on the site failed. Litigation ensued. There was an arbitration proceeding over the Vue Project involving plaintiff, Blanton, and multiple subcontractors, which resulted in an award in plaintiff’s favor and against Blanton in the amount of $7,234,541.33. That award precipitated Blanton’s filing for bankruptcy in this Bankruptcy Court….Blanton then sued defendant for damages under the same insurance policy at issue here for costs associated with removing and replacing the failed retaining wall. After reference to the Bankruptcy Court was withdrawn, that case was tried to a jury last summer in this Court and resulted in a verdict in favor of Blanton and against defendant in the amount of $331,868….

In this case, plaintiff seeks yet more money for damages it allegedly incurred in connection with the failure of the retaining wall at the Vue Project. This time, plaintiff claims that it is entitled to its alleged loss of rental income and soft costs under Blanton’s insurance policy with defendant as an additional insured.

Before me now are cross-motions for summary judgment filed by the parties. Because plaintiff is not entitled to soft costs and loss of rental income as an additional insured under the plain language of the insurance policy, defendant’s motion for summary judgment is granted and plaintiff’s motion is denied.

Did the Travelers adjusters deny the claim because the owner was listed as a named additional insured and for the reasons argued by Travelers attorneys and accepted by the court? No. The Travelers adjusters, who adjust thousands of similar cases with builders risk policies naming the owner as an additional named insured, paid a $200,000 partial payment to the owner. They then refused to pay more, saying that the loss did not exceed the $200,000 previously advanced. 2 Travelers adjusters never denied the claim saying that an additional named insured owner could not collect soft costs and loss of rents.

Why would the contractor purchase loss of rents coverage, and why would Travelers sell a loss of rents policy to a contractor who can never collect loss of rents? The only way the loss of rents coverage could ever be paid is if the owner, listed as an additional named insured, could collect the coverage. Obviously, this is known by the claims department because the adjusters were paying the owner for these monetary losses in a partial payment.

The court clearly missed the boat about insurance law finding:

The parties could have written the Travelers Policy so that the Coverage Extension and Risk Special Time Element Coverage Form applied to both the Named Insured and Additional Named Insureds, but they did not.

This is an adhesion contract. Only the insurer writes it. It is not a made-up manuscript policy. The wording is entirely made up by Travelers underwriters. There is no “they” in the writing of nearly any insurance contract.

A former Travelers adjuster turned public adjuster, Tony D’Amico, had this to say about the decision:

I agree this is a bad decision. Among other things is my thought is that the court took an excessively narrow view of the meaning of ‘financial interest in the covered property.’ The ‘covered property’ should be construed to mean the project, which would include the covered soft costs at risk, not just the sticks and bricks. To me at least, it doesn’t make sense to say that ‘otherwise, the distinction between the definitions of covered property and soft costs would be meaningless.’ Why would it be meaningless? The policy is intended to cover the project and each of the insured items that make up the project are defined for the purpose of setting forth that which the policy covers. Therefore, coverage for the owner, an Additional named insured, should have been afforded to the extent of his financial interests.

Furthermore, the policy is indeed illusory at least to a certain extent because the contractor does not have any exposure or risk of loss to Rental Income and Delay Costs. Therefore, based on the court’s logic, the rental income and delay coverage is indeed meaningless/illusory because none of the insured parties, including and specifically the Named Insured Contractor, could recover for a loss covered under these insuring agreements. I wonder what position Travelers would have taken had the contractor asserted a claim for the lost rental income and other covered delay costs. I presume it would have been ‘go pound sand.’ How do you think the court would have ruled on that had it been an issue, i.e., the contractor filing a rental income and delay claim.

This case is similar to the insurance company attorneys taking a hyper-literal reading of a change the ISO made to its business income forms. Those attorneys successfully argued that the intent of the policy was to only pay for business interruption if there was a total shutdown of business rather than a slowdown. The ISO and the insurance industry never meant that, and the ISO had to go back and change its forms so business customers could collect from partial shutdowns of business operations.

My advice to those in the construction and property development business: Don’t buy a Travelers builders risk policy and go to another insurance company. Travelers is showing that its builders risk umbrella has huge holes and will do anything to fight against payment after a loss happens.

Thought For The Day

The road to hell is paved with adverbs, and I will scream it from the rooftops. To put it another way, they’re excuses. Weak verbs, weak thinking.
—Stephen King

1 BCC Partners v. Travelers Prop. Cas. Co. of America, No. 4:22-cv-849, 2024 WL 1050117 (E.D. Mo. Mar. 11, 2024).
2 Letter from Travelers to Blanton Construction.