The Second Circuit found that two claims arising from the same project were unrelated, creating two separate payments by the insurer for the two separate claims. Dormitory Auth. of New York v. Continental Cas. Co., 2014 U.S. App. 12088 (2nd Cir. June 23, 2014).
In 1995, the State agency contracted with the insured architectural firm to design and oversee the construction of a new dormitory at City University of New York. Plans drawn by the architects erred in their estimate of the steel requirement. To recover losses from the resulting delay and expense, the agency sent a demand letter in May 2002 to the architects detailing the Steel Girt Tolerance issue.
After the project was finished in 2001, another problem was discovered: excess accumulations of snow and ice were sliding off the building onto sidewalks a considerable distance away. The Ice Control Issue was studied during the winter of 2003-04. The conclusion was that the design of the facade failed to account for temperature variations appropriate for a building in New York. The problem could not be resolved by adding canopies, which would have been a cheaper fix. Study of the problem continued into 2005.
The architects' professional liability policies were claims-made policies. Two policies were implicated: 2000-02 and 2003-04. The policies provided that "all related claims shall be considered a single claim first made and reported within the policy year in which the earliest of the related claims was first made and reported." "Related claims" were defined as "all claims made against the insured and reported to the insurer during the policy period during any policy year arising out of a single wrongful act or related wrongful acts."
A settlement on the claims was reached as follows. Continental would pay the agency approximately $3.1 million under the 2000-02 policy for the claim made in the 2002 Demand Letter, i.e., the Steel Girt Tolerance Issue. Continental would pay an additional $3 million under the 2003-04 policy if the agency succeeded in obtaining a declaratory judgment that the Ice Control Issue was not related to the Steel Girt Tolerance Issue.
The district court ruled that the Ice Control Issue was not related to the Steel Girt Tolerance Issue and therefore entered judgment that Continental was to pay $3 million pursuant to the settlement agreement.
Continental appealed. It argued that the 2002 Demand Letter alleged professional negligence in terms broad enough to include all design defects in the building,i.e., both the Steel Girt Tolerance Issue and the Ice Control Issue. The Second Circuit disagreed, finding that the letter only addressed the specifics of the Steel Girt Issue. It was not until the 2003-04 study was concluded that it became clear that major design changes would be needed.
Further, the Steel Girt Tolerance Issue and the Ice Control Issue were not "related claims." The claims arose from two unrelated, wrongful acts. One had to do with the structural integrity of the building. The other had to do with its aesthetic design. The solutions for each issue were wholly different. Therefore, Continental had to pay the two separate, unrelated claims.