A unit of the Liberty Mutual Insurance Group has ruled in a lawsuit over a damaged skyscraper in Houston because the damages do not meet the requirements of the subsequent loss provision, says a federal appeals court, in a confirmation of a judgment in the Netherlands.
A subsequent loss provision includes situations where an uncovered loss leads to a covered loss, according to Monday's ruling of the 5th U.S. District Court in New Orleans in Balfour Beatty Construction LLC; Milestone Metals Inc. v Liberty Mutual Fire Insurance Co.
TCH Energy Corridor Venture LLC, a unit of Dallas-based Trammel Crow Co., the developer of a commercial office building in Houston known as Energy Center 5, chose Dallas-based Balfour Beatty Construction Ltd. as its main contractor.
Balfour, in turn, subcontracted to Houston-based Milestone Metals Inc. for the construction of the project's structural steel, stairs and decorative steel on the project, according to the decision.
Trammel Crow, who was required to obtain the builder's risk insurance for the project, received a commercial internal marine policy that included building risk coverage from Liberty Mutual and Balfour and Milestone became additional insured during the coverage. The coverage was valid from 1
In October 2015, Milestone welded a two-inch metal plate to the outer pipe on the building's 18th floor. Several months later, welding slag from the project fell on the side of the building and damaged glass windows on the lower floors outside.
Liberty Mutual denied coverage, and Milestone and Balfour eventually replaced Trammel Crow's windows at a cost of approximately $ 686,976.88, according to the ruling.
Balfour and Milestone then filed an appeal against Liberty Mutual in the U.S. District Court in Houston, which ruled in favor of the insurer. The verdict was upheld by a unanimously appealed court panel of three judges.
Liberty Mutual's policy excludes losses due to defects, errors or omissions relating to construction, according to the decision.
Under an exception to the exclusion, the subsequent loss provision, Liberty would pay all losses that resulted in a covered hazard, the decision said.
The parties did not agree on the application of the subsequent loss provision, according to the decision. An "accompanying loss provision such as the one presented here is triggered only when one (excluded) hazard results in a distinct (covered hazard) which means that there must be two separate events for the exemption to be triggered," the decision said.
It did not happen here, the decision concluded. “Simply put, Appellant's welding operation involved falling slag, which damaged the outer glass of the Energy Center 5. The welding operation is inseparable from the falling slag; they are not two separate events. The falling slag is not an independent event that "resulted in a covered danger," the decision said.
There was "only one reason for the loss in this case – the complainant's welding operation", said in the decision and confirmed the decision of the lower court.
Lawyers in the case did not respond to a request for comment.
In June, a federal appeals court ruled that a subcontractor could not recover under a property owner's Liberty Mutual Insurance Group unit risk policy due to the coverage's exclusion of improper execution.