Source: http://www.businessinsurance.com, June 23, 2014
By: Judy Greenwald
Two design flaws in construction of a City University of New York building entitle the building’s owner, the Dormitory Authority of the State of New York, to two separate limits of liability, says an appeals court, in upholding a lower court ruling that the two claims were unrelated.
Continental Casualty Company, a unit of Chicago-based CNA Financial Corp., had issued claims made liability policies to the architectural firm responsible for designing and overseeing construction of a building for the Dormitory Authority of the State of New York for Baruch College of the City University of New York, according to Monday’s ruling by the 2nd U.S. District Court of Appeals in New York in Dormitory Authority of the State of New York. V. Continental Casualty Company.
In September 1995, the Albany, New York-based Dormitory Authority contracted with an architectural firm to design and oversee construction of a new building for Baruch College, according to the ruling.
Plans drawn by the architects and its subcontractor erred in their estimate of the steel requirement and in specifications of the structural steel girt and exterior facade, and the Dormitory Authority sent a demand letter to the architects on this issue in May, 2002, according to the ruling.
Meanwhile, after the project was finished in 2001, it was discovered that excessive accumulation of snow and ice were sliding off the building onto sidewalks a considerable distance away, according to the ruling. A subsequent study concluded that the façade design had failed to account for temperature variations appropriate for a New York building.
In June 2004, Travelers Casualty & Surety Co., a unit of the Travelers Indemnity Company in Hartford, Connecticut, which provided the surety on performance bonds purchased by the project’s general contractor, sued the Dormitory for delay-related expense and pass-through claims from subcontractors. The architects were sued for contributing to the delays and for breach of professional duties. Although not identified in the ruling, the architect in the case was New-York based architect Kohn Pedersen Fox Associates, according to an attorney in the case.
The relevant architects’ professional liability policies that were issued were for 2000-02 and 2003-04, according to the ruling. These policies provided that all related claims would be considered a single claim.
A 2009 settlement agreement between the Dormitory Authority and Continental provided that Continental would pay the Dormitory Authority $3.1 million under the 2000-02 policy for the steel girt issue, and an additional $3 million under the 2003-04 policy if the Dormitory Authority succeeded in obtaining a declaratory judgment that the ice control issue was not a related claim.
In March, 2013, the U.S. District Court in New York held the steel girt and ice control issues were separate claims. Continental Insurance appealed that ruling. A three judge appeals panel agreed with the lower court the two claims were unrelated.
“Continental points out that the 2002 Demand Letter alleges professional negligence in terms broad enough to include all design defects in the building: the Steel Girts Tolerance issue as well as the Ice Control issue,” says the ruling.
“However, the rest of the letter specifies the architects’ failures concerning the Steel Girt Tolerance Issue, and identifies no other failure of design or execution.”
The ruling says also that Continental alleges the two claims are related under the policy wording because they “arise out of a single wrongful act or related wrongful acts.”
However, one claim “has to do with the structural integrity of the building, the other, with its aesthetic design,” say the ruling.
“The two issues involved different design teams; two separate sets of contractors worked on them. The problems ultimately manifested themselves at different times and resulted in different types of damages. The solutions to each issue were wholly different. That both may have resulted from the generalized neglect of the Architect’s is an insufficient degree of relatedness,” said the ruling, in upholding the lower court ruling.