The court granted summary judgment and declined to find coverage under the specific terms of a builders’ risk policy for vandalism and water damage to a building where the policy was in effect, but other work had not begun.
Dririte USA, Inc. v. Prosperita Leadership Academy, arises from a motion for summary judgment filed in a case involving a renovation contractor, property owner, and insurance carrier. In March 2018, the insurance carrier issued a builders’ risk policy to the property owner, for work that was to be done on a building owned by the property owner. Later that year, in August 2018, the building was vandalized, resulting in water damage. The contractor performed remediation work on the property pursuant to an assignment of benefits, and a claim was made against the builder’s risk policy. The insurance carrier denied the claim, and the lawsuit ensued.
The policy at issue in the litigation had the following language:
PROPERTY COVERED
“We” cover the following property unless the property is excluded or subject to limitations.
Rehabilitation And Renovation -- “We” cover buildings or structures while in the course of rehabilitation or renovation as described below.
1. Coverage --
a. Existing Building -- If coverage for Existing Building is indicated on the “schedule of coverages”, “we” cover direct physical loss caused by a covered peril to an “existing building” while in the course of rehabilitation or renovation.
. . .
COVERAGE LIMITATION
(X) Vacant Building -- “We” only cover a vacant “existing building” for 60 consecutive days from the inception date of this policy unless building permits have been obtained and rehabilitation or renovation work has begun on the “existing building”.
The contractor argued that the above-stated provisions were ambiguous and therefore unenforceable, and that the building was not vacant because there were tables and chairs at the building that the property owner used to periodically meet with other contractors or engineers. The court rejected these arguments, finding that the above-stated policy language was unambiguous, and that based on other testimony provided, that the building was vacant for the purposes of the policy, notwithstanding occasional project meetings being held there.
The court also found that more than 60 days had passed since the inception of the policy when the loss occurred, and that no permits had been obtained and no work had begun. The court rejected the contractor’s argument that planning efforts and meetings with architects and engineers constituted the “beginning of work” for the purposes of the insurance policy.
After reaching these conclusions, the carrier entered judgment in favor of the insurance carrier, effectively denying any relief to the contractor.
The key takeaway from this ruling is that if contractor’s are going to rely on a payment from an insurance carrier, they need to be well aware of the policy language, and take steps to ensure they are taking action based on the requirements of the policy. Here, the renovation contractor probably was not the main contractor being considered for the building remodel, and thus probably had very little control over permitting or the start of other work. Under those circumstances, it may make sense for a contractor to agree to delay seeking payment from the property owner while the owner tries to obtain payment from an insurance carrier, but not to have payment from the carrier be the only option.