Community Health sues insurer for refusing to cover $6M in damage at east-side hospital

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Community Health Network is suing its insurance carrier after the hospital network said it had to shell out more than $6 million to correct construction problems at one of its hospitals.

Community Hospital East, which just underwent a massive, $175 million upgrade, suffered major damage to its concrete slab and foundation during early stages of construction, apparently from sulfate in the ground that penetrated the concrete, hospital officials said in their lawsuit.

Community Health Network said its insurance carrier on the project has refused to cover the loss from the needed repairs.

The construction projects and legal dispute are laid out in a lawsuit now proceeding through Marion Superior Court. Community Health filed the suit Aug. 26 against its insurer, Federal Insurance Co., better known as Chubb.

Community is alleging that Chubb breached its contract, and refused to pay the loss as required under the terms of the policy. It is seeking unspecified damages.

A spokeswoman for the insurer declined to comment Thursday on the suit, saying the company does not comment on litigation matters.

The dispute centers on the huge overhaul of Community Hospital East, a 63-year-old institution at 1500 N. Ritter Ave., off East 16th Street.

In February, the hospital completed construction of a 175-bed tower, new operating rooms and a new emergency room, in a much-publicized upgrade of the aging complex.

But, behind the scenes, officials had been dealing with a huge problem, according to the complaint. During construction, concrete from a demolished building on the site was crushed and recycled for use as backfill for the foundation of the new patient tower.

In the summer of 2017, after contractors poured the concrete slab over the fill material, they observed cracking in the slab that they attributed to natural settlement of the elevator shaft. A few months later, they noticed that lower-level blocks were shifting, and the concrete floor was heaving.

Community Health hired a consultant, Northbrook, Illinois-based Wiss Janey Elstner Associates Inc., to investigate the damage. The consultant concluded that an external sulfate attack caused the problem, the complaint said.

Such an attack “typically occurs when environmental sulfate present in water or soil penetrates concrete and reacts with cement paste,” the complaint said. Sulfate attacks are common in Western states, but “extremely unusual” for this part of the country, according to the lawsuit.

Community’s construction contractors concluded that the damage was caused by a natural force—a sulfate attack—and as such should be covered by the project’s insurance carrier.

Community submitted a claim on March 14, 2018, but to avoid delaying the project, paid construction contractors $6.1 million to repair the damage to the concrete slab and foundation.

Chubb, the insurer, later denied coverage for the loss. According to a letter to Community’s lawyers in January 2019, included as an exhibit in the lawsuit, Chubb said Community’s loss was caused “in part by faulty planning.”

“None of the project specifications, minutes, testing reports or other documents received to date show that the groundwater was tested to determine its sulfate content,” Chubb’s letter said. “The recycled concrete backfill was used without testing groundwater conditions or otherwise considering the effect of exposing the backfill to groundwater conditions.”

As a result, Chubb denied the claim, saying the policy contained an exclusion for loss caused by faulty workmanship. It also referred to exclusions in the policy for loss caused by “settling, subsidence, cracking, shrinking, bulging or expansion of land, paved or concrete surfaces, foundations, pools or structures.”

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