99 Wall Development Inc. v. Allied World Specialty Insurance Company

Background

99 Wall Development Inc. owned a 29-story building being renovated and converted into residential condominiums. Allied World Specialty Insurance Company issued a builders’ risk policy that included coverage for delays in completing the renovation project. Two water events occurred in July and October 2016. Allied World paid more than $2 million for physical damage, but 99 Wall claimed additional costs from project delays. 99 Wall asserted that the project was delayed by 263 days, while Allied World concluded there was no covered delay.

99 Wall filed claims for physical damage and delay-related costs and later sued for breach of contract and breach of the duty of good faith and fair dealing. It sought consequential damages and attorneys’ fees based on Allied World’s alleged bad-faith investigation and handling of the claims. The parties also disputed how the policy required delay to be measured. 99 Wall’s expert used a critical-path method, while Allied World’s expert used a “but for” approach that considered whether the project would have been completed earlier without the covered water events.

Methodology Motion

Allied World moved for partial summary judgment, asking the court to rule that the policy required its preferred method for measuring delay and required delay to be measured against completion of the entire project rather than interim construction milestones.

The court held that the policy did not necessarily require the “but for” method. The policy language was reasonably open to more than one interpretation concerning delays caused simultaneously by covered and non-covered events. Because the policy was ambiguous on that question, a factfinder would have to determine the proper interpretation after considering the parties’ evidence. The court emphasized that it was not endorsing 99 Wall’s critical-path method.

The court reached the opposite conclusion about interim deadlines. The policy referred to completion of the covered rehabilitation or renovation project, which the policy described as the renovation of the entire 29-story building. The original construction contract had one completion date for the project, and the interim temporary certificates of occupancy were added only after construction had begun and after the policy was issued. The court therefore held that any covered delay had to be measured against completion of the entire project, not those later-added interim deadlines.

The court accordingly denied in part and granted in part Allied World’s motion for partial summary judgment regarding methodology. It did not decide whether the water events actually caused a covered delay or how long any such delay lasted.

Bad Faith, Consequential Damages, and Attorneys’ Fees

Allied World separately moved for summary judgment on 99 Wall’s bad-faith claim and its requests for consequential damages and attorneys’ fees. Under the New York law applied by the court, an insured generally cannot recover those damages or fees without showing that the insurer acted in bad faith. The required showing includes more than an arguable disagreement over coverage and requires evidence of unreasonable or egregious conduct.

The court held that Allied World’s interpretation of the policy was at least reasonable, even though it was not the only plausible interpretation. The court also found that Allied World promptly investigated the claims, made typical information requests, paid for physical repairs, and participated in settlement efforts. The record did not support a finding of egregious conduct, including apart from the reasonableness of Allied World’s policy interpretation.

The court therefore granted Allied World’s motion for partial summary judgment regarding 99 Wall’s bad-faith claim and its related requests for consequential damages and attorneys’ fees.

Motion to Strike and Disposition

Allied World moved to strike certain documents submitted by 99 Wall. The court denied that motion. It did not rely on some of the challenged expert materials, and it concluded that allegations that other affidavits were self-serving did not require striking them from the record.

The final order stated that Allied World’s methodology motion was denied in part and granted in part, its motion regarding consequential damages and attorneys’ fees was granted, and its motion to strike was denied. The parties were directed to file a joint status update within 30 days concerning next steps, settlement prospects, and possible settlement assistance.