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Appeals Court Rules in Favor of Hyatt Contractor in Claims Denial Case

Source: Business Insurance

Posted on 05 Aug 2009

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The 8th U.S. Circuit Court of Appeals ruled Tuesday that the reporting period for making a claim under builders risk coverage begins when the policy stipulates, not when the damage is discovered.

The ruling overturns a lower court ruling that found in The Weitz Co. L.L.C. vs. Lloyd's of London that insurers could deny a claim based on lack of timely notice as several months had lapsed between the property damage and when the insurers were informed of the damage. The St. Louis-based court, however, ruled the policy contained clear language stipulating claims be filed "as soon as practicable after the loss or damage became known to the insured's risk manager.” As representatives for the insurers and the risk manager involved were informed of the claim simultaneously, the claim could not be barred for lack of timely notice, the court ruled.

The case stems from a June 2002 rain storm that damaged property at an Aventura, Fla.-construction site where Des Moines, Iowa-based Weitz was acting as the general contractor for an affiliate of Chicago-based Hyatt Corp. Representatives of Hyatt who regularly visited the site discovered the damage soon after the storm but did not inform the company's risk manager, David Mikulina, the court ruling states. Meanwhile, Weitz repaired the damage. Weitz in December submitted to the Hyatt representatives the $3.4 million claim for the cost of repair. The notice of the water damage claims was then forwarded to Mr. Mikulina and GAB Robins North America Inc., the loss adjuster named in the policy.

Weitz sued Lloyd's and other insurers on the risk in federal court, claiming bad-faith denial of the claim and breach of contract.

The insurers argued, and the lower court ruled, Weitz violated the policy's notice-of-loss provision. The insurers argued Weitz's interpretation of the policy was “absurd” as it would allow claims notices to be delayed for years as long as Hyatt's risk manager was unaware of the claim.

The appeals court noted, however, that “if the insurers believed their own policy language was absurd, then they should have drafted different language.”

A related dispute over Weitz's responsibility for the damage should be decided at trial, the court ruled.