In the court's first ruling on the issue, a five-judge appeals panel for the New York Supreme Court said that Manhattan real estate developer El-Ad 250 West LLC's argument that the flood limit in the builders' risk insurance policy only applied to physical losses fails in the face of the policy language, which limited claims for “all” flood losses.
“The plain language of the delay in completion coverage form, which incorporated the policy terms by reference, applied the $5 million flood sublimit to 'all' losses, including nonphysical damage losses, such as those resulting from a delay in completion,” the appeals panel said. “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.”
El-Ad sued Zurich in New York court in August 2013, after the insurer denied coverage for losses at a waterfront property in Tribeca, where the developer planned to convert an 11-story office building into a 12-story condominium by the end of 2012. The developer took a $20 million hit in property losses and delays because of Superstorm Sandy, El-Ad said in the complaint.
The developer said its policy with Zurich included coverage for delays in completion, such as the loss of rental income. The policy provided up to $115 million per occurrence between January 2011 and December 2012, El-Ad said.
In July 2014, Judge Werner Kornreich granted partial summary judgment for Zurich, noting that unlike other insurance policies, the Zurich policy's definition of flood losses included all losses, not just physical property damage.
“A loss that would not have occurred but for a flood is subject to a $5 million annual aggregate limit, without regard to the type of loss suffered,” she held. “The expression 'all losses or damages arising during (a flood)' clearly does not exclude nonphysical losses.”
El-Ad argued on appeal that the delay in completion coverage was a stand-alone policy with its own $7 million cap for economic losses — losses which are not covered by the builders' risk policy at all. The developer attempted to further distinguish the two kinds of coverage by pointing out that the completion-delay coverage extends past the builders' risk coverage period.
The appeals court was not convinced, ruling that “the fact that the main policy and the coverage form may have separate deductibles or coverage periods pertains to the type of losses at issue, and does not preclude a single overriding flood limit.”
Counsel for the parties declined to comment.
El-Ad is represented by James Murray and Jared Zola of Dickstein Shapiro LLP.
Zurich is represented by Philip Silverberg and Mark Katz of Mound Cotton Wollan & Greengrass.
The case is El-Ad 250 West LLC v. Zurich American Insurance Co., case number 652964/13, in the Appellate Division of the New York Supreme Court, First Department.