Commercial Real Estate and Insurance and Construction and Real Estate & Retail

One Indiana Square owner sues insurer over storm-damage repairs

April 14, 2008

The owners of a downtown skyscraper badly damaged in a 2006 storm are suing their insurance company after it halted payments on a facade-replacement project.

The suit, filed April 1, accuses the insurance company of a "bad faith" attempt to avoid paying for repairs to the 36-story One Indiana Square building at the northeast corner of Pennsylvania and Ohio streets.

The building owner, One Indiana Square Associates LLC, is facing off with locally based Federal Insurance Co., which is part of Chubb Group of Warren, N.J. The insurance policy was sold by locally based Gregory & Appel Inc., and included quarterly premium payments of roughly $36,000 and "replacement cost" coverage up to $120 million.

The lawsuit does not provide a price estimate for the repairs, but an outside expert says the cost likely will exceed $30 million.

Large property claims often end up in litigation that is later settled outside of court, said Joe Belth, professor emeritus of insurance at Indiana University's Kelley School of Business and editor of The Insurance Forum, a monthly newsletter.

"These are complex insurance contracts," Belth said. "There's plenty of room for dispute."

One of Belth's recent newsletters included an article co-written by Richard E. Stewart, a former superintendent of insurance in New York and former chief financial officer of Chubb Group, the defendant in the One Indiana Square lawsuit.

Stewart's article says insurers have developed a habit of delaying claims and resisting payment--moves that disrupt the sense of confidence buyers of property liability insurance used to have in their policies.

"From an insurer's point of view, denying coverage for large claims has become an effective, perhaps even necessary, competitive strategy," Stewart wrote. "From a policyholder's point of view, the cost of collection has gone way up and reliability has gone way down."

A settlement is likely in the One Indiana Square case since both parties are "reasonable," said Charlie Vaught, a claims advocate with Gregory & Appel Inc. who has been working to resolve the dispute.

"There's plenty of coverage and it's the appropriate coverage," Vaught said of the policy his firm sold to the building owners. "The dispute over what's covered is between the owners and the carrier."

Todd Maurer, president of Indianapolisbased Halakar Real Estate, which manages the tower, declined to comment on the litigation. Chubb had not filed a response to the lawsuit and a spokesman did not return a phone message by IBJ's deadline.

Maurer and his father, Michael S. Maurer, co-own the tower with local businessman Robert Schloss and Pittsburgh-based McKnight Group. Michael Maurer and Schloss also own IBJ Media, publisher of IBJ.

The lawsuit shows a dispute over the insurance claim began before the owners launched the renovation project last summer, after an April 2, 2006, storm blew out dozens of windows and forced the city to close nearby streets to protect motorists from falling debris. No one was injured, but the storm displaced more than 1,000 employees working in the building.

Two engineering firms, Cincinnati-based Facade Forensics and New York-based Thornton Tomasetti, recommended in a May 2006 report that "overcladding"-- replacing the building's damaged facade with a new glass-covered curtain wall--was the best and safest option for repair. The suit claims that at the time, Chubb had no objection to the plan.

But over the following months, the insurance company took a variety of new positions. The suit alleges that Chubb adjuster Steve Mortensen claimed at one point that "overcladding" wasn't covered by the policy. A few months later he came back with an "outrageously low" repair estimate, then a few months later claimed Chubb had the option to do the repairs itself.

In January 2007, Chubb put forward a new plan by engineer Jim Weithorn--a consultant the insurance industry "had been using to avoid paying claims submitted by victims of Hurricane Katrina" by claiming the hurricane itself didn't cause the damage, the lawsuit says.

The state's building commissioner determined that Weithorn's plan--which called for retrofitting non-matching pieces of wall--would be in violation of the building code.

Despite the lawsuit, work continues on the skyscraper's new facade. Completion of the project is expected in about a year.

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