In BCC Partners, LLC v. Travelers Prop. Cas. Co. of America, 2024 WL 1050117 (E.D. Mo. March 11, 2024), the Court determined that the plaintiff property owner, as an additional insured, was not entitled to the same insurance coverage as the named insured where the builder’s risk policy limited the scope of recovery for soft costs and rental income.

Factual Background

The plaintiff property owner hired a contractor to construct an apartment complex.  Pursuant to that construction contract, the contractor purchased a builder’s risk policy with the defendant insurer.  The contractor was the only named insured while the property owner was an additional insured.

After the failure of a retaining wall, the property owner submitted a claim to the insurer under the contractor’s policy, alleging that it was entitled to soft costs and lost rental income.  The insurer made an initial payment, but after further investigation, it denied coverage for those items and reserved the right to recoup the funds.  The property owner then sued for breach of contract.

Arguments and Court’s Analysis

In support of the property owner’s argument that it was entitled to coverage for soft costs and lost rental income, it contended that the policy’s coverage extensions were to be liberally construed as granting coverage to all insureds, including additional named insureds.  However, the Court rejected that argument as a matter of law.

In doing so, the Court considered several policy provisions.  First, the Coverage Extension for Soft Costs stated: “We will pay your ‘Soft Costs’ during the ‘period of delay in completion.’” Second, with respect to rental income, the Builder’s Risk Special Time Element Coverage Form stated: “We will pay the actual loss of ‘rental value’ you sustain.”  Third, the policy defined “you” and “yours” as follows: “Throughout this policy, the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations.”  Bearing these in mind, the Court determined that the coverages for soft costs and rental income, which specifically employed the defined term “you,” applied solely to the contractor as the named insured.  The court explained that the parties could have written the policy so that they applied to both the named insured and additional named insureds, but did not do so.

The court also noted that the policy provision entitled “Additional Named Insured” did not provide the property owner with a basis to recover.  That provision limited an additional insured’s coverage “only to the extent of their financial interest in the Covered Property.”  The policy defined “Covered Property” to include certain permanent or temporary works.  Soft costs and rental value had distinct and separate definitions, reinforcing the notion that they were not encompassed as part of the “financial interest in the Covered Property.”  To find otherwise would have rendered the distinction between coverage for Covered Property, soft costs, and rental value meaningless.

Moreover, the Court rejected the insurer’s argument that the policy was illusory because it did not afford an additional insured the same coverage as the named insured.  The fact that an insurance policy unambiguously limits the recovery for certain types of damages to named insureds, only, does not render an insurance policy illusory.

Nor did the insurer’s initial payment to the property owner create coverage, as under Missouri law, waiver or estoppel “cannot create a contract of insurance or so apply as to bring within the coverage of policy property, or a loss or risk, which by the terms of the policy is expressly excepted or otherwise excluded.”  “While estoppel may operate to bar a defense to a claim of coverage, it does not create coverage where none existed under the policy in the first place.”

For these reasons, the insurer was entitled to summary judgment, and the property owner was not entitled to soft costs and lost rental income.

Conclusion

There are often distinctions between named insureds and additional insureds relative to coverage under builder’s risk policies.  Such policies are not always designed to protect all parties to a construction project from every type of loss.  For example, as demonstrated in BCC Partners, LLC, there are often limitations tied to economic-type extensions.  Given the intricacies of construction risks, insurers ought to incorporate clear and concise policy language and definitions to avoid ambiguities and inadvertent coverages for unintended parties.