New York Court: Flood Sub-Limit in Policy Applies to Delay Loss

The New York Supreme Court’s Appellate Division affirmed that a $5 million flood sub-limit in a builders risk policy that Zurich American Insurance issued to a New York property developer applies to the delay-in-completion losses by the flood peril after Superstorm Sandy.

A five-judge panel of the state Supreme Court’s Appellate Division reached its unanimous decision on July 7, affirming a lower court ruling from June 27, 2014.

Last year’s ruling by the state Supreme Court, New York County, granted Zurich’s motion for partial summary judgment, declaring that the builders risk policy Zurich issued to the plaintiff limited the amount the insurer must pay for losses, including the delay-in-completion losses, to $5 million.

“The plain language of the delay-in-completion coverage form, which incorporated the policy terms by reference, applied the $5 million flood sub-limit to ‘all’ losses, including nonphysical damage losses, such as those resulting from a delay in completion,” the Appellate Division panel wrote in its decision. Reading the coverage in such a way as to find that flood losses do not apply to delay-in-completion losses would render the flood limit meaningless with respect to that coverage, the court also wrote.

The case involves plaintiff El-Ad 250 West LLC, a New York City property developer that was in the middle of developing a construction project on a building located in the Tribeca neighborhood in lower Manhattan. The project involved converting a waterfront office building into a condominium.

Zurich had issued El-Ad a builders risk insurance policy, effective Jan. 10, 2011 to Dec. 31, 2012. The policy was an “all-risk” policy and included coverage for property damage and delay-in-completion losses.

On Oct. 29, 2012, while the policy was in effect, Sandy flooded the property and caused delay-in-completion losses, according to court documents.

The policyholder suffered some $20 million in property and delay-in-completion losses. The policy had a limitation of $115 million in coverage per occurrence, with further sub-limits and aggregate limits, including a $5 million annual aggregate limit for flood losses and a $7 million limit for the delay-in-completion coverage.

The parties disputed whether the delay-in-completion losses arising from a flood are subject to the policy’s flood limits. The plaintiff had argued that it was entitled to the delay-in-completion coverage of up to $7 million in addition to the $5 million flood coverage.

But Zurich’s position has been that if the losses are caused by a flood, the maximum recoverable amount for all losses including delay-in-completion losses would be $5 million.

The state Supreme Court, New York County, ruled in favor of Zurich’s reading of the policy, which has now been affirmed by the Appellate Division.

The case is El-Ad 250 West LLC v. Zurich American Insurance, 652964/13, the Appellate Division of the New York Supreme Court.