Hall Arts Ctr. Office, LLC v. Hanover Ins. Co., Civil Action No. 3:16-CV-3226-D
Decision Date | 27 August 2018 |
Docket Number | Civil Action No. 3:16-CV-3226-D |
Citation | 327 F.Supp.3d 979 |
Parties | HALL ARTS CENTER OFFICE, LLC, Plaintiff, v. HANOVER INSURANCE COMPANY, Defendant. |
Court | U.S. District Court — Northern District of Texas |
Constantine Z. Pamphilis, Nathan W. Richardson, Kasowitz Benson Torres LLP, Houston, TX, Jeffrey M Tillotson, Tillotson Law, Dallas, TX, Linda D Kornfeld, Kasowitz Benson Torres & Friedman LLP, Los Angeles, CA, for Plaintiff.
Peri H. Alkas, Phelps Dunbar LLP, Houston, TX, Paige Craig Jones, Phelps Dunbar LLP, Southlake, TX, for Defendant.
SEALED OPINION
In this removed action seeking recovery for a claim for lost rental income and soft costs under a builder's risk insurance policy, defendant Hanover Insurance Company ("Hanover") moves for summary judgment on all claims. Plaintiff Hall Arts Center Office, LLC ("Hall Arts"), a company engaged primarily in the business of commercial real estate, cross-moves for summary judgment. Hanover and Hall Arts both move to exclude expert witness testimony. For the reasons that follow, the court grants in part and denies in part Hanover's motion for summary judgment, denies Hall Arts's cross-motion for summary judgment, and denies Hanover's and Hall Arts's motions to exclude expert testimony.
This lawsuit arises from a dispute over Policy No. IHD-9935566, a builder's risk insurance policy (the "Policy"), issued to Hall Arts.1 The Policy covers the construction of an 18-story office building and adjoining retail space at 2323 Ross Avenue in Dallas (the "KPMG Plaza"). Hall Arts owns KPMG Plaza.
Turner Construction ("Turner") was the general contractor for the KPMG Plaza construction. The contract between Hall Arts and Turner set two progress milestones for the project: (1) a topping-out and dry-in date2 of November 1, 2014, and (2) a substantial completion date3 of April 1, 2015. Turner commenced construction on August 1, 2013. Over one year later, on October 13, 2014 rainwater leaked through openings in the temporary roof and damaged one of the high-voltage bus ducts ("Bus Duct B") (the "Weather Event"). Bus Duct B was intended to deliver electricity to mechanical equipment on various floors of the property. Bus Duct B was repaired and energized by November 25, 2014.
The relevant tenant of KPMG Plaza in this case is KPMG. KPMG's lease provides that it will lease about 150,000 square feet of the building, spanning from the third through seventh floors to part of the eighth floor. KPMG was originally scheduled to commence its tenant fit-out, or the process of preparing the interior space for KPMG's occupancy,4 on December 22, 2014, and, prior to the Weather Event, voluntarily delayed its tenant fit-out to January 1, 2015. KPMG did not actually commence the tenant fit-out process until January 14, 2015. On January 20, 2015 the Dallas Fire-Rescue Department ("DFRD") halted the fit-out, requiring Hall Arts to complete certain fire alarm and life safety items before resuming.5 DFRD, Hall Arts, and Turner agreed to a revised list of required items on January 30, 2015. KPMG commenced its actual occupancy of KPMG Plaza, and paying rent to Hall Arts, on July 27, 2015.
Section 3.1 of the KPMG lease specifies when KPMG is to begin paying rent:
Rent will accrue beginning on the date (‘Commencement Date’) which is the earlier to occur of: (i) the commencement of occupancy of the Premises by Tenant for the normal conduct of business; or (ii) the date that is nine (9) months following [‘Construction Move-In Period’] the Delivery Date (but in no event prior to (1) Substantial Completion...of Landlord's Premises Work ..., (2) Substantial Completion of Landlord's Building Work ..., and (3) receipt of Certificates of Occupancy for the Core and Shell with respect to the Premises[.]
D. 3/30/18 App. 232. The lease requires the landlord to deliver the premises to the tenant with each floor of the premises dried in and sufficiently complete to allow the tenant to commence tenant's work (the "delivery date") by October 1, 2014. Id. at 234. The lease also states that the "Landlord shall Substantially Complete the Landlord's Building Work by June 30, 2015." Id. [redacted] Id. at 228.
Hall Arts sought compensation from Hanover under the Policy for costs arising from alleged delays resulting from the Weather Event. Pertinent to the dispute in this lawsuit, the Policy provides for coverage of "soft costs incurred during the delay period" so long as they "arise out of a ‘delay’ to a ‘building or structure’ at a ‘jobsite’ described on the Delay in Completion Schedule." P. 3/30/18 App. 50. "Soft costs" are defined as "the necessary and reasonable costs relating to the construction, erection, or fabrication of a covered ‘building or structure’ that are over and above those costs that would have been incurred had there been no ‘delay period.’ " Id. at 51. The Policy specifies that soft costs are limited to interest payments, realty taxes, lease expenses, and insurance premiums. Covered insurance premiums are the "[a]dditional cost of insurance premiums necessary to renew or extend insurance coverage." Id.
The Policy also covers "actual loss of rental income incurred during the ‘delay period’ " that "arises out of a ‘delay’ to a ‘building or structure’ at a ‘jobsite’ described on the Delay in Completion Schedule." Id. The Policy defines "delay period" as "the period of time the completion of the construction, erection, or fabrication of a covered ‘building or structure’ is ‘delayed’ as a result of direct physical loss or damage caused by a covered peril to property covered under the Builders' Risk Coverage form to which this coverage part is attached." Id. at 49. "Delay" is "an interruption in the construction, erection, or fabrication of a ‘building or structure’ caused by a covered peril." Id. "Buildings or Structures" are defined as: Id. at 44. The "Perils Covered" provision states that risks of direct physical loss or damage are covered unless the loss is limited or caused by an excluded peril, which includes, inter alia , seizure by civil authority, earth movement, fungus, nuclear hazard, flood, sewage backup, war, and delay in completion and increased construction costs . Id. at 34-37. The Policy states that "[i]f a waiting period is indicated on the Delay in Completion Schedule, we do not pay for: a. additional soft costs; b. loss of rental income; or c. loss of net income until after the number of days indicated on the schedule have passed." Id. at 56. The Delay in Completion Schedule specifies that the waiting period is 30 days. Id. at 58.
Id. at 56. The Policy also requires Hall Arts to "cooperate with [Hanover] in performing all acts required by this policy." Id. at 39.
On April 2, 2015 Hall Arts submitted a claim to cover the cost of repairing Bus Duct B ("hard costs claim"). Hanover and Turner met on June 11, 2015 to "finalize the builder's risk claim." During the meeting, Turner mentioned the possibility that Hall Arts could have a delay claim for soft costs and loss of rental income stemming from the Weather Event.
Hall Arts submitted a second claim for soft costs and loss of rental income on November 10, 2015. Hall Arts attached an interim expert report by Navigant Consulting, Inc. ("Navigant Consulting"), which calculated Hall Arts's damages. The claim included lost rental income from tenants, including KPMG and other tenants, as well as soft costs, including interest on construction loans and realty taxes. At that time, Turner estimated that the Weather Event resulted in 54 days of lost rental income from KPMG.
Hanover acknowledged receipt of the claim on November 16, 2015, and, on December 3, 2015 emailed Hall Arts stating that no determination could be made at the time and that Hall Arts would be informed if further documentation was needed. Two weeks later, Hanover requested additional documentation, including the original schedules for June, July, October, November, and December 2014, along with the biweekly schedule meeting minutes for July, September, and October 2014.
On December 30, 2015 Hall Arts sent Hanover the construction schedules for June, July, August, and December 2014, and meeting minutes for the months of July, September, and October 2014. Hanover wrote back on January 15, 2016 that the supplied...
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