Builders risk policies for large-scale projects can be complex, and the scope of losses arising from those projects can be difficult to identify. A trial court in New York recently addressed the “delay-in-completion” and “permission to occupy/operate” endorsements, concluding that both provisions were unambiguous and measured delays based on the scheduled date of completion. See W2001Z/15 CPW Realty v. Lexington Ins. Co., 2014 N.Y. Misc. LEXIS 349, 2014 NY Slip Op. 30215 (Jan. 22, 2014).

The case centered on a large luxury condominium being built at Central Park West in Manhattan, with a number of builders risk policies providing $100 million of coverage during the construction. Prior to completion of the project, a number of plumbing failures caused water damage to several of the condo units as well as the lobby/concierge areas of the building. After Lexington covered the damage caused by the water damage, the plaintiff made a claim for lost income of over $5 million after there were delays in closings on dozens of the units during the period of restoration.

As to the lost income, the court ruled that coverage was not available under the delay-in-completion endorsement. The policy provided coverage for a “Delay in Completion Loss … caused by direct physical loss or direct physical damage to Insured Property … .” “Delay” was defined as “the period of time between the Scheduled Date of Completion, as stated in the Declarations, and the actual date on which commercial operations or use and occupancy commenced or should have commenced … .”

The plaintiff conceded that the leaks did not delay completion of the project as a whole, but only the sales of certain units while construction was ongoing. Plaintiff also conceded that the leaks were fully repaired before the completion of the whole project. The court rejected plaintiff’s argument that the delay-in-completion coverage was triggered by any delay in completion of a particular portion of the project. The court noted that nothing in the policy tied the date of completion to a closing date on a particular unit, rather than the entire insured project. Simply because the policies included a detailed description of the project and the number of units it contained did not raise a triable issue as to the intent of the parties.

The policies also included a “permission to occupy/operate” extension, which provided that “the policy is extended to permit partial occupancy/operation of any … property insured … prior to final acceptance by the Owner and coverage shall not be reduced due to such partial occupancy/operation … .” The plaintiff argued that the coverage extensions was added to make clear that the policy provided delay-in-completion coverage on a unit-by-unit basis. The trial court rejected this argument, ruling that the extension merely provided that the entire policy would not lapse once an individual unit was sold. The court further ruled that the provision was clear and unambiguous, and there was no need to resort to extrinsic evidence regarding the parties’ intentions.

Finally, the plaintiff also made a claim for additional money expended to prevent further leaks caused by the faulty workmanship of its plumbing subcontractor. The court found that the measures taken by the plaintiff to protect the building from further water leaks was clearly excluded by the faulty workmanship exclusion. The court rejected plaintiff’s argument that the policies’ “protection-of-property” provisions, which provided that the plaintiff “will take reasonable steps to protect, recover or save the property insured and minimize any further or potential loss or damage when: A. The property insured has sustained direct physical loss or damage by an insured peril.” The court noted that the property did not sustain direct physical loss from an insured peril. Because the plumbing was never properly installed, the court concluded that it had never reached an “initial satisfactory state; therefore, there was no external event that changed them into an unsatisfactory state.” Therefore, coverage was not triggered, and the court noted that to hold otherwise would effectively nullify the faulty workmanship exclusion.