Hall Arts Ctr. Office, LLC v. Hanover Ins. Co.
Hall Arts Ctr. Office, LLC v. Hanover Ins. Co.
Opinion of the Court
*987In 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.
I
This lawsuit arises from a dispute over Policy No. IHD-9935566, a builder's risk insurance policy (the "Policy"), issued to Hall Arts.
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 date
The relevant tenant of KPMG Plaza in this case is KPMG. KPMG's lease provides *988that 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,
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/
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/
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."
The Delay in Completion Schedule lists the jobsite as
NEW CONSTRUCTION OF 18 STORY OFFICE BUILDING ON TOP OF EXISTING PARKING GARAGE AND 2 STORY FREE STANDING RESTAURANT BUILDING; 470,386 SQ FT AND 20,947 SQ FT; CONCRETE FLOORS, METAL STUDS, GLASS EXTERIOR WALLS FOR LARGER BUILDING, TILT WALL CONCRETE WITH METAL DECK ROOF FOR THE RESTAURANT.
Id. at 64.
To secure coverage, a builder covered under the Policy "must produce records, including tax returns and bank microfilms of all canceled checks relating to value, loss, and expense and permit copies and extracts to be made of them as often as [Hanover] reasonably request[s]." Id. at 39. The Policy provides that
[i]in determining an Income Coverage loss, [Hanover] consider[s]: 1. the probable experience during the time of "delay" had no loss occurred; 2. continuing operating expenses normally incurred by the "business", including, but not limited to, payroll expense necessary to resume "business" to a similar level that existed before the occurrence of direct physical loss or damage; and 3. pertinent sources of information and reports including: a. accounting procedures and financial records; b. bills, invoices, and other vouchers; c. contracts, deeds, and liens; d. reports on feasibility and status; and e. records documenting the budget and marketing objectives and results.
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, *990as 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 information was insufficient to permit Hanover to review the claim.
On March 7, 2016 Hall Arts responded with additional information, including an October schedule update that was conducted in November 2014. Hall Arts also proposed a meeting between the parties and consultants to finalize the claim. Hanover stated that it would review the materials and advise on the next course of action. On March 30, 2016 Hall Arts sent a follow up email, again suggesting a meeting between the parties and their consultants. Hanover responded that it would deliver a report soon and would discuss a meeting later, if warranted. The report, produced by Hanover's consultant, Michael S. Eddings of PT & C LWG Forensic Consulting Services, concluded:
The Loss of Business Income Claim for this project could not be accurately evaluated because of the lack of information supporting the claim. To properly evaluate the claim, original construction schedules for the months of August 2014 through December 2014 were needed. Original Master Construction Schedules for June, July, and August of 2014 were received. Schedule Updates for November 2014 and Revised Master Construction Schedule for December 2014 were received, Request for the missing Original Master Construction Schedules for the months of September, October, and November, and December of 2014 were requested via e-mail on February 10, 2016 (Attachment E, E-mail request prepared by Eric Clontz). The requested Original Master Construction Schedules were not received and therefore, the Loss of Business Income Claim cannot be accurately evaluated.
Id. at 174. Hall Arts's insurance coverage counsel wrote back via email that Hall Arts had given substantial information to Hanover, which should have allowed Hanover to investigate how the Weather Event impacted the construction schedule. Hall Arts again proposed an in-person meeting to resolve issues regarding the soft loss claim. A different consultant to Hanover, Constantine "Gus" Cois ("Cois"), a Senior *991Project Manager for DBI Construction Consultants, LLC ("DBI"), sent notice to Hall Arts of various inconsistencies in Hall Arts's documentation. The notice also requested further documentation and stated that a supplemental request might be necessary. Hanover requested, inter alia , meeting minutes that Hall Arts had not yet provided and all updated schedules from October 2014 through project completion. Hall Arts responded in a letter on August 3, 2016, clarifying its position that lost rental income should be calculated based on the tenant fit-out date and not any other completion date (e.g., substantial completion of the building). Hall Arts also attached the requested additional documents.
Hall Arts and Hanover met on August 16, 2016 to discuss the delay claim. While the parties came to no conclusions at the meeting, Hall Arts understood Hanover to state that it would provide Hall Arts with a coverage determination by the end of August. On August 30, 2016, following review of Hall Arts's documentation, Cois, acting on behalf of Hanover, sent Hall Arts another request for documentation. As of the time of this lawsuit, Hanover has not yet made a determination on Hall Arts's delay coverage claim.
Hall Arts brought this lawsuit in state court to enforce the delay in completion coverage part and Hanover's duty under Texas law to investigate and respond to its policyholder's request for coverage. In its state-court petition, Hall Arts alleges claims for breach of contract, breach of the duty of good faith and fair dealing, and violations of Chapter 541 and Chapter 542 of the Texas Insurance Code. Hanover removed the case to this court.
As part of the pretrial discovery process, Hall Arts disclosed an expert report from Bryan T. Byrd ("Byrd"), President of Synergen Consulting International, LP, Hall Arts's retained expert. Byrd's report focuses on delay of the tenant fit-out date resulting from the Weather Event's delay of completion of permanent parts of KPMG Plaza that were critical to commencing KPMG's fit-out. Byrd opined that the Weather Event resulted in 48 days of lost rental income from KPMG.
Hanover submitted an expert report by Cois, which focused instead on the substantial completion date and completion of top-out/dry-in dates set forth in the Turner construction contract. Based on these contractual milestones, Cois concluded that no delay resulted from the Weather Event because the top-out/dry-in date was not delayed and the substantial completion of KPMG Plaza as a whole, including the *992restaurant, retail space, and art walk, was delayed as a result of other events.
Hanover now moves for summary judgment on all of Hall Arts's claims, and it moves to exclude Hall Arts's expert witness testimony to be offered through Byrd and O'Toole.
II
Hanover moves for summary judgment on claims for which Hall Arts will have the burden of proof at trial. Because Hall Arts will have the burden of proof, Hanover's burden at the summary judgment stage is to point the court to the absence of evidence of any essential element of Hall Arts's claim. See Celotex Corp. v. Catrett ,
Because Hall Arts will have the burden of proof at trial on its claims, to be entitled to summary judgment on these claims, it "must establish 'beyond peradventure all of the essential elements of the claim[.]' " Bank One, Tex., N.A. v. Prudential Ins. Co. of Am. ,
III
The court turns first to Hall Arts's and Hanover's summary judgment motions.
A
The court first addresses Hall Arts's breach of contract claim. Hall Arts alleges *993that Hanover breached the Policy by (1) requesting documents not required by the Policy as a precondition of coverage, and (2) failing to cover both lost rental income and soft costs, including a holdover penalty and 48 days of insurance premiums, arising during a delay period caused by the Weather Event.
The parties do not dispute that Texas law applies in this case. In Texas, a breach of contract claim requires proof four elements: "(1) the existence of a valid contract, (2) plaintiff's performance of duties under the contract, (3) defendant's breach of contract, and (4) damages to the plaintiff resulting from the breach." Hoffman v. L & M Arts ,
The court focuses solely on the third element: whether Hanover breached the Policy.
B
Hall Arts moves for summary judgment on its claim that Hanover breached the Policy by requesting documents not required by the Policy as a precondition of coverage and by changing the scope of documents it requested. Hanover responds that no language of the Policy bars it from requesting the construction schedules or additional documentation of the progress of the project. The court agrees with Hanover.
The Policy specifies that, when making a coverage determination, Hanover considers certain items, such as "the probable experience during the time of 'delay' had no loss occurred" as well as "pertinent sources of information and reports including...reports on feasibility and status." Id. at 56. Hall Arts offers no reason why the documentation that Hanover requested does not qualify either as "reports on feasibility and status" or as related to "the probable experience during the time of 'delay' had no loss occurred." Nor does Hall Arts point to any language in the Policy that precluded Hanover, as it proceeded through its investigation, from changing the scope of information required to make a coverage determination.
Accordingly, the court denies Hall Arts's motion for summary judgment on its breach of contract claim based on Hanover's request for documents not required by the Policy.
C
The court turns next to Hall Arts's claim that Hanover breached the Policy by failing to cover Hall Arts's lost rental income and soft costs. In determining whether Hanover failed to pay a valid delay coverage claim, the court first assesses whether Hall Arts has shown that the Weather Event resulted in a qualifying delay period under the Policy. The court focuses specifically on how a delay period under the Policy can be measured. Hall Arts maintains that it can establish a delay period by showing delay to tenant fit-out of the KPMG-leased space. Hanover posits that the Policy only covers delays to construction milestones for the entire KPMG Plaza, as set forth in the contract between Hall Arts and Turner.
If delay to the tenant fit-out of the KPMG-leased space qualifies as a delay period under the Policy, the court then determines whether a reasonable jury could find that the Weather Event resulted in lost rental income and soft costs to Hall Arts. When considering lost rental income, the court looks to whether the Weather Event delayed the date KPMG began paying rent, per the terms of the KPMG lease.
*9941
Hanover maintains that Hall Arts cannot show that Hanover breached the delay coverage provision because Hall Arts cannot establish the requisite "delay period" during which it could recover soft costs and rental income.
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." P. 3/30/
2
The court disagrees with Hanover's characterization of the delay coverage provision. The Policy does not define a covered "building or structure" with reference to the jobsite description. Instead, the Policy defines "Buildings or Structures" in the definition section to mean: "a. buildings; b. structures; c. materials and supplies that will become a permanent part of the buildings or the structures; and d. foundations, excavations, grading, filling, attachments, permanent fencing, and other permanent fixtures." P. 3/30/
The court is not persuaded by the two cases that Hanover cites for the proposition that builder's risk coverage provisions do not cover delays to the construction of components of the overall project. In W2001Z/15 CPW Realty, LLC v. Lexington Ins. Co. ,
Nor is the court persuaded by Hanover's textual argument that the term "and," which is found following subsection c in the Policy definition of "building or structure," is conjunctive and therefore requires Hall Arts to establish delay to a "building or structure," i.e., the entire KPMG Plaza, as opposed to items that represent but one component of a building or structure. Texas courts have accepted both conjunctive and disjunctive constructions of the term "and." See *995Trammell Crow Residential Co. v. Am. Prot. Ins. Co. ,
This construction [of and as or ], however, is never resorted to except for strong reasons and the words should never be so construed unless the context favors the conversion; as where it must be done in order to effectuate the manifest intention of the user; and where not to do so would be to render the meaning ambiguous, or result in an absurdity; or would be tantamount to a refusal to correct a mistake.
Accordingly, the court declines to dismiss Hall Arts's breach of contract claim on the basis that the delay coverage provision does not apply to the Weather Event because the Weather Event did not delay construction of the overall KPMG Plaza.
3
Hanover also maintains that the court should dismiss the breach of contract claim because Hall Arts has not presented evidence from which a reasonable jury could find that a loss in rental income resulted from a delay to construction of the office building at KPMG Plaza.
The Policy 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." P. 3/30/
First, the court concludes that there is a material factual dispute regarding whether delay to the commencement of occupancy of the premises by KPMG for the normal conduct of business resulted from the Weather Event. The parties disagree about the date on which KPMG could actually have occupied its office space, but for the Weather Event. [redacted]. Hanover, relying on the KPMG lease, maintains that the earliest KPMG could actually have occupied the building was July 1, 2015. Hanover points to the latest date of completion *996of the Landlord's Building Work, set by the lease as June 30, 2015, as evidence that KPMG could not occupy the building before July 1, 2015.
Second, the parties also present conflicting evidence regarding the extent of delay resulting from other factors unrelated to the Weather Event. It is undisputed that the electrical storm occurred on October 13, 2014; that KPMG's tenant improvements were originally scheduled to begin on December 22, 2014; and that KPMG later postponed commencement of tenant fit-out until January 1, 2015. Hanover points to DFRD's shutdown of tenant fit-out for several weeks in January. It is undisputed that KPMG began the layout of its tenant space on January 14, 2015, and that DFRD halted the tenant buildout on January 20, 2015. Turner then resumed tenant buildout on January 30, 2015, a few weeks after agreeing with DFRD regarding certain required safety items. Hanover presents evidence of delay by DFRD from January 14, 2015 to February 17, 2015 that contributed to delay in the tenant fit-out process and the date when KPMG could occupy the office building. Hall Arts adduces its own evidence that the requirements imposed by DFRD did not ultimately differ from what the Project originally contemplated and thus did not result in delay.
[redacted]
Given the significant number of disputed material facts, the court is unable to make a determination on whether and to what extent the Weather Event caused Hall Arts to lose rental income from KPMG. It is thus unable to determine whether Hanover breached the Policy by failing to cover Hall Arts's lost rental income claim.
4
Hanover also maintains that Hall Arts has not shown that Hanover breached the Policy because Hall Arts has not presented evidence from which a reasonable jury could find that the Weather Event resulted in soft costs. Hall Arts posits that the 48-day delay to KPMG's occupancy arising from the Weather Event required Hall Arts to extend its insurance policy to cover the additional construction. Hall Arts also seeks to claim a one-month holdover penalty it reimbursed as a result of KPMG's being unable to move into KPMG Plaza according to schedule.
The court denies Hanover's motion for summary judgment on this basis for the same reasons set out infra at § IV(A)(3). Given the number of genuine issues of material facts, the court is unable to make a determination at the summary judgment stage on whether and to what extent the Weather Event delayed Hall Arts's occupancy of KPMG Plaza. It is thus unable to determine whether Hanover is liable for the holdover penalty and the 48 additional days of insurance premiums.
Accordingly the court denies Hanover's motion for summary judgment and Hall Arts's cross-motion for summary judgment on the breach of contract claim.
D
The court turns next to Hall Arts's claim that Hanover breached its duty of good faith and fair dealing by delaying payment on Hall Arts's delay claim for over 28 months and by conducting an investigation designed to defeat a finding of coverage.
1
"Under Texas law, there is a duty on the part of the insurer to deal fairly and in good faith with an insured in the processing of claims." Higginbotham v. State Farm Mut. Auto. Ins. Co. ,
A cause of action for breach of the duty of good faith and fair dealing exists when the insurer has no reasonable basis for denying or delaying payment of a claim or when the insurer fails to determine or delays in determining whether there is any reasonable basis for denial. In order to sustain such a claim, the insured must establish the absence of a reasonable basis for denying or delaying *998payment of the claim and that the insurer knew, or should have known, that there was no reasonable basis for denying or delaying payment of the claim. The insured must prove that there were no facts before the insurer which, if believed, would justify denial of the claim. However, insurance carriers maintain the right to deny questionable claims without being subject to liability for an erroneous denial of the claim. A bona fide controversy is sufficient reason for failure of an insurer to make a prompt payment of a loss claim. As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith.
The focus of a bad faith inquiry is on the reasonableness of the insurer's conduct in rejecting or delaying payment of the claim, see Universe Life Insurance Co. v. Giles ,
2
Hall Arts contends that Hanover decided not to request documents it knew were in existence at the time Hall Arts submitted its delay claim, dragged out requests for irrelevant documents over eleven months, failed to request that Hall Arts provide a sworn proof of loss, and engaged two consultants who prepared three incomplete and inconclusive reports. Hanover maintains that it is entitled to summary judgment on Hall Arts's bad faith claim because a bona fide dispute exists regarding Hanover's liability for Hall Arts's lost rental income and soft costs. The court agrees with Hanover.
"[T]he existence of a bona fide controversy is a sufficient reason for failure of an insurer to make a prompt payment of a loss claim." Robinson v. State Farm Fire & Cas. Co. ,
The facts that Hall Arts cites in support of this claim are insufficient to evince bad faith by Hanover and to avoid summary judgment. Hall Arts has merely presented conclusory assertions and has not produced evidence creating a genuine issue of *999material fact regarding whether Hanover failed to pay or delayed evaluating the claim in bad faith. See, e.g. , Orthopedic & Sports Injury Clinic v. Wang Lab. Inc. ,
E
The court now addresses Hall Arts's Texas Insurance Code claims. Hall Arts alleges that Hanover violated Chapter 541 of the Texas Insurance Code by failing to attempt to settle after liability became reasonably clear, in violation of
1
Section 541.003 of the Texas Insurance Code precludes a person from engaging "in this state in a trade practice that is defined in this chapter as or determined under this chapter to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance."
2
Because Hall Arts has failed to present evidence that establishes a genuine issue of material fact concerning its claim for breach of the duty of good faith and fair dealing, the court concludes that its § 541 claims under § 541.060(a)(2)(A) and § 541.060(a)(7) also fail.
A "bona fide dispute" regarding insurance coverage precludes liability for breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code. See Higginbotham ,
3
Defendants have not carried their burden to establish that Hall Arts's claim under § 541.060(a)(4)(A) for "failing within a reasonable time to...affirm or deny coverage of a claim to a policyholder" automatically fails because the court has dismissed Hall Arts's breach of the duty of good faith and fair dealing claim.
For the bona fide dispute rule to apply, the extracontractual claim must share "the same predicate for recovery as bad faith causes of action in Texas." Higginbotham ,
F
Hall Arts also alleges that Hanover violated the Texas prompt-payment statute by failing to timely request documentation to evaluate the claim, in violation of § 542.055;
1
"The Texas prompt-payment statute provides for additional damages when an insurer wrongfully refuses or delays payment of a claim." Metro. Hosp. Partners, Ltd. v. Lexington Ins. Co. ,
2
Hanover posits that the court should dismiss Hall Arts's Chapter 542 claims because Hall Arts failed to respond to all of Hanover's requests for information. The court disagrees. Hanover has not presented any evidence that would enable a reasonable jury to find that Hall Arts failed to provide "all items, statements, and forms reasonably requested and required under Section 542.055."
Because genuine issues of material fact remain regarding Hanover's liability for Hall Arts's delay claim, the court is unable to make a determination on Hall Arts's Chapter 542 claims at the summary judgment stage. Accordingly, the court denies Hall Arts's and Hanover's motions for summary judgment on this claim.
IV
The court will now consider Hanover's and Hall Arts's motions to exclude expert witness testimony.
A
The court decides these motions in its role as gatekeeper concerning the admissibility of expert testimony. See, e.g. , Pipitone v. Biomatrix, Inc. ,
The court may admit proffered expert testimony only if the proponent, who bears the burden of proof, demonstrates that (1) the expert is qualified, (2) the evidence is relevant to the suit, and (3) the evidence is reliable. See Kumho Tire Co. v. Carmichael ,
An expert must be qualified. "Before a district court may allow a witness to testify as an expert, it must be assured that the proffered witness is qualified to testify by virtue of his 'knowledge, skill, experience, training or education.' " United States v. Cooks ,
*1002To be relevant, "expert testimony [must] 'assist the trier of fact to understand the evidence or to determine a fact in issue.' " Pipitone ,
"Reliability is determined by assessing 'whether the reasoning or methodology underlying the testimony is scientifically valid.' "
"Whether an individual is qualified to testify as an expert is a question of law.... Rule 702 does not mandate that an expert be highly qualified in order to testify about a given issue. Differences in expertise bear chiefly on the weight to be assigned to the testimony by the trier of fact, not its admissibility." Huss v. Gayden ,
B
The court first addresses Hanover's motion to exclude Byrd and O'Toole as Hall Arts's testifying expert witnesses.
1
Byrd was retained to perform a forensic schedule analysis to identify critical events and factors that contributed to the delayed start date of tenant build-out. O'Toole was initially engaged by Hall Arts to prepare its first party claim for loss of rental income, additional soft costs, and general administrative costs. O'Toole's expert report relied on Byrd's conclusion that a 48-day delay in KPMG's lease resulted from the Weather Event. O'Toole estimated, based on KPMG's lease and the rent rolls, that KPMG was obligated by the lease to pay Hall Arts $[redacted] per day in rent. O'Toole concluded that the total loss of net rental income resulting from the Weather Event was $[redacted]. O'Toole also concluded that the 48-day delay in the commencement date of KPGM's lease led Hall Arts to incur $[redacted] in soft costs, which included $[redacted] in extended insurance premiums and $[redacted] of a holdover penalty.
2
Hanover does not dispute that Byrd and O'Toole are both qualified to testify regarding forensic accounting and construction schedule analysis. Hanover maintains instead that Byrd and O'Toole's opinions are not relevant. It posits that the Policy assesses delay in completion coverage based on the delayed completion of the project rather than on the tenant's build out schedule. Hanover contends that both Byrd's report and O'Toole's report are irrelevant because they analyze the Weather Event's effect on the tenant build out schedule and delays to tenant occupancy rather than the overall completion date, which is the relevant date for establishing a delay period under the Policy. The court disagrees for the reasons explained supra at § III(C)(2). Under Daubert the expert's testimony must be relevant. To be relevant, "expert testimony [must] 'assist the trier of fact to understand the evidence or to determine a fact in issue.' " Pipitone ,
Because the date of KPMG's actual occupancy may trigger the accrual of rent under the KPMG lease, delays to KPMG's tenant fit-out and resulting delays to its actual occupancy are relevant to whether rental income was lost. O'Toole's and Byrd's opinions will be helpful to the finder of fact in determining whether Hanover was liable for Hall Arts's claim and, ultimately, whether Hanover breached the Policy by delaying or denying payment of the claim.
Accordingly, the court declines to strike O'Toole's and Byrd's testimony on the basis that its lacks relevance.
3
Hanover also maintains that O'Toole's expert report is unreliable for a number of reasons, such as that [redacted]; O'Toole did not consider certain documents when determining whether the holdover penalty resulted from the Weather Event; O'Toole did not conduct an independent investigation of the claimed soft costs; and O'Toole fails to explain why all 48 days of the insurance extension are attributable solely to the Weather Event.
Hanover's argument is insufficient to warrant excluding O'Toole's expert opinions. In the process of investigating lost rental income and soft costs resulting from the Weather Event, O'Toole avers that he
met with Hall Arts and Turner personnel and considered all relevant documentation produced in this matter, consisting of hundreds of pages of documents. From August 5, 2015 through the date [he] submitted [his] expert report, [he] engaged in seven conference calls and four in-person meetings with Hall Arts and Turner personnel concerning the construction delay and Hall Arts' internal accounting to independently measure and verify the loss of rental income and soft costs....[he] carefully reviewed all underlying supporting accounting information and correspondence concerning the soft costs and loss of rental income relating to the delay period measured by Byrd.
P. 4/20/18 Resp. to Hanover App. 467. In light of O'Toole's independent investigation of the relevant supporting documentation, the court concludes that his reliance upon Byrd's calculations is proper. See GWTP Invs., L.P. v. SES Americom, Inc. ,
Regarding O'Toole's calculation of lost rent, the holdover penalty, and the extended insurance premiums, the court analyzes the internal logic of the methodology used by O'Toole in reaching his conclusions, "determin[ing] whether the testimony has 'a reliable basis in the knowledge and experience of [the relevant] discipline.' " Kumho ,
In his expert report, O'Toole describes his methodology for arriving at lost net rental income of $[redacted]. O'Toole first considered the terms of the KPMG Lease, which provide that KPMG was to lease 176,016 square feet spanning the eighth *1004through fifteenth floor of the office building at $[redacted] per square foot, and 6,096 square feet on the ninth floor at $[redacted] per square foot. O'Toole estimated that the saved operating expenses, including those associated with elevator operations, cleaning, HVAC systems, management fees, maintenance, payroll, and courtesy patrol, for the days KPMG Plaza did not operate at full capacity, totaled $[redacted] per day. He then multiplied this number by the 48-day delay and the proportion of the total square footage leased by KPMG (57.66%). He deducted this amount from the total lost rental revenue to reach $[redacted], the total loss of net rental income. O'Toole also explains that he attributed the holdover penalty resulting from KPMG's extension of its stay in its previously leased space to the 48-day delay measured by Byrd because this holdup delayed KPMG's date of actual occupancy of KPMG Plaza. O'Toole also estimated that Hall Arts incurred an additional $[redacted] per day in additional insurance premiums, which arose out of Hall Arts's extension of the builders' risk insurance policy to cover the additional time needed to complete tenant fit-out of the KPMG-leased space.
[Redacted]. But Hanover offers no evidence supporting its argument and does not appear to challenge Hall Arts's methodology for calculating lost rental income. Regarding the holdover penalty and insurance premiums, Hanover merely posits that O'Toole did not consider other factors that led Hall Arts to incur such costs; Hanover does not show why O'Toole's finding of causation is so unreliable as to merit exclusion. See, e.g. , Curlee v. United Parcel Serv., Inc. ,
Because Hanover fails to show that O'Toole's testimony lacks reliability, the court denies Hanover's motion to exclude O'Toole as an expert.
4
Hanover objects to Byrd's testimony as unreliable on the ground that Byrd incorrectly stated that the damage to Bus Duct B was not repaired until December 17, 2016; Byrd did not consider two separate HVAC chiller leaks into Bus Duct B that occurred after Bus Duct B was repaired on November 25, 2017; Byrd incorrectly noted that certain workaround options that would have delayed tenant fit-out relied on power distribution through Bus Duct B; and Byrd did not consider facts in the record that contradict his report, including that Turner did not anticipate the fire safety requirements imposed by DFRD in January 2015.
The court holds that such arguments are insufficient to warrant excluding Byrd's testimony. In his expert report, Byrd avers that he relied upon all records and documentation made available during the course of litigation up until the time his expert report was submitted. Byrd also testified in his deposition that he considered facts such as the two other HVAC chiller leaks and DFRD's interference with tenant fit-out but simply came to the conclusion that such factors did not impact the critical path to completion of tenant fit-out. And regardless, while Byrd's lack of consideration of certain facts may undermine the credibility of his conclusions, it does not render his testimony inadmissible. See *1005Curlee ,
Nor is the court persuaded that Byrd's alleged misstatement of the date of repair of Bus Duct B and incorrect consideration of workaround options are sufficient to exclude his testimony. The record includes conflicting evidence regarding the repair date of Bus Duct B.
The court thus declines to exclude Byrd's testimony on the basis that it is unreliable.
C
The court now turns to Hall Arts's motion to exclude Cois as Hanover's expert witness.
1
Hall Arts maintains that Cois's testimony is not relevant because it focuses on the effect of the Weather Event on the dried-in date and substantial completion date for KPMG Plaza,
"The standard for relevance is a liberal one." EEOC v. Manville Sales Corp. ,
Accordingly, the court holds that Cois's testimony should not be excluded on relevance grounds.
Hall Arts maintains that Cois's opinions are unreliable because they are not based on sufficient facts or data and because Cois did not employ a recognized methodology in forming his opinions.
In preparing his report, Cois reviewed construction documents and communications produced during the course of litigation. Cois did not review the Policy and the definition of delay period. But Hall Arts provides no explanation of why such review is necessary to offer a reliable opinion regarding whether the top-out/dry-in date milestone was met and whether tenant build-out commenced as originally scheduled. Regarding his "methodology," Cois's report states:
To complete the required tasks associated with the assignment, DBI performed a detailed review and analysis of the submitted documentation. Upon completion of the review, DBI cross-referenced the information contained in the various documents to determine consistencies and inconsistencies within the details of the information. DBI based its observations and conclusions on the data and information that was obtained from the various documents.
D. 4/19/
Because Hall Arts has not shown that Cois's report is unreliable, the court denies Hall Arts's motion to exclude Cois as an expert witness.
* * *
For the reasons explained above, 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.
SO ORDERED.
Because both sides move for summary judgment, the court will recount the evidence that is undisputed, and, when it is necessary to set out evidence that is contested, will do so favorably to the side who is the summary judgment nonmovant in the context of that evidence. See, e.g. , GoForIt Entm't, LLC v. DigiMedia.com L.P. ,
Completion of topping-out work is the "installation of sufficient measures to complete placement of the concrete at the deck above the 18th level." D. 3/30/
Substantial completion is the date when, "[i]n general, the only remaining Work shall be minor in nature so that the Owner could occupy the Work, it can be accepted as final by Owner within thirty (30) days following the date of Substantial Completion, and the completion of the remaining Work by Contractor would not materially interfere with or hamper the Owner's normal use of the Work." D. 3/30/
Neither party defines what the process of "tenant fit-out" involves in this case.
DFRD required (1) a fully functioning monitored fire alarm panel, (2) garage fire alarm operational, (3) life safety systems operational (including elevator recall), (4) emergency electrical functioning, and (5) generator tested and furnishing.
The Delay in Completion schedule refers to form IM7851 for the project description.
Hanover stated:
The information supplied is incomplete. Per previous request, the original schedules for the months of September, October, November, and December 2014 have not been received. The claims for "loss of business income" cannot be properly evaluated due to incomplete information. We request you send us copies of the original schedules for September, October, November and December along with the schedule you sent us along with the schedule minutes from [November and December]. The December schedule you sent us was a revised schedule. We need the original to compare. Without the schedules during and immediately after the loss date, we cannot accurately evaluate your delay claim and we can't see how anyone else could either.
P. 3/30/
Byrd determined that the date of commencing KPMG's tenant fit-out was delayed from December 22, 2014 to February 18, 2015 (58 days) as a result of the Weather Event on October 13, 2014. KPMG was not scheduled to start its tenant fit-out until January 1, 2015, however, so only 48 days for the 58-day difference was attributable to the Weather Event.
A holdover penalty is a fee that a tenant who overstays the lease must pay to the landlord in order to extend occupation of the space temporarily.
Hanover has filed objections in which it challenges some of the evidence included with Hall Arts's response to Hanover's motion for summary judgment. Hanover primarily objects to the evidence as lacking foundation and as inadmissible hearsay. The hearsay challenge includes Byrd's report, O'Toole's report, and the May 13, 2015 memo from Craig Hall. To the extent the court has relied on evidence to which Hanover objects, the objections have been considered on the merits and are overruled. As to evidence to which an objection has been made but on which the court has not relied for any purpose in deciding Hanover's motion for summary judgment, the objections are overruled as moot.
Because the court is denying infra at § IV the motions of Hanover and Hall Arts to exclude expert testimony, the court will consider the expert reports of Cois, Byrd, and O'Toole when deciding the summary judgment motions.
The lease states that the "Landlord shall Substantially Complete the Landlord's Building Work by June 30, 2015." D. 3/30/
Hanover acknowledges, and Hall Arts does not dispute, that (ii) contemplates a July 1, 2015 date. Neither party addresses whether the Property was actually delivered by October 1, 2014. It appears, based on the rental income provision of the lease, that if delivery occurred in compliance with the terms of the lease, then KPMG's actual occupancy on July 27, 2015 dictates, at the latest, a July 1, 2015 commencement date (the earlier of the two dates in the rental income provision). And if rent would have begun accruing on July 1, 2015 at the latest, then actual occupancy on July 27, 2015 would not have delayed the date rent began accruing because it would still begin accruing by July 1, 2015, which is the earlier of the dates set by (i) and (ii). If rent would have begun accruing on June 1, 2015, however, then KPMG's commencement of actual occupancy on July 27, 2015 would have delayed the date rent began accruing to July 1, 2015 at the latest. In this case, however, KPMG began paying rent on the date of its actual occupancy-July 27, 2015-which, according to KPMG's lease, suggests that the date of actual occupancy occurred prior to the delivery date plus nine months. The court thus cannot determine at the summary judgment stage the Weather Event's role in delaying rental income.
Byrd testified that Turner did not contemplate the five requirements imposed by DFRD, but stated that those five requirements were revised on January 30, 2015 to cover only the items originally scheduled to be completed before tenant fit-out began-tie-in of the fire protection and life safety systems on the critical path to commencing tenant fit-out.
Although Hall Arts states that Hanover fails to show that the shutdown by DFRD is an excluded "order by civil authority," it presents no supporting argument for this proposition and focuses instead on an argument that DFRD did not actually cause any delay to KPMG's occupancy.
Because the court holds that there at least exists a genuine factual dispute regarding DFRD's role in the delay, the court does not reach Hanover's argument that Turner also contributed to the delay.
The court gives the words of the actual loss of rental income provision their plain meaning. See Evanston Ins. Co. v. Lapolla Indus., Inc. ,
Because the court holds that material disputed facts exist regarding whether the Weather Event delayed KPMG's occupancy, the court does not reach the issue of whether the Policy covers the holdover penalty.
An insurer must acknowledge receipt of the claim, commence any investigation of the claim, and request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant no later than the 15th day after the date an insurer receives notice of a claim. See
Insurers are required to "notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss."
[e]xcept as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.
Hanover relies on S.R. Residence, LLC v. Lexington Ins. Co. ,
Turner's master construction schedule notes that completion of "Bus Duct Repair" occurred on December 17, 2014, while Hall Arts's meeting notes for "Meeting # 67" indicate that bus duct B was energized on November 25, 2014.
Cois's testimony analyzes whether the Weather Event delayed the overall KPMG Plaza project, as measured by the deadlines set forth in the Turner construction contract. In his deposition, Cois testified numerous times that he did not evaluate the timeline for KPMG's tenant fit-out and that he had no opinion regarding whether Hall Arts suffered lost rents from KPMG.
Cois testified in his deposition: "My opinion is that the turnover for tenant fit out was not delayed as a result of the October 13th event because the date of November 1st, was met."
It is unclear whether the turnover date of October 21, 2014 is synonymous with the "delivery date," as defined by the KPMG lease.
Hall Arts relies on Balfour Beatty Rail, Inc. v. Kansas City Southern Railway Co. ,
Reference
- Full Case Name
- HALL ARTS CENTER OFFICE, LLC v. HANOVER INSURANCE COMPANY
- Cited By
- 14 cases
- Status
- Published