The Seventh Circuit held yesterday that a "builders risk" policy doesn’t constitute "fire insurance" under Michigan law. Hunt Construction Group, Inc. v. Allianz Global Risks U.S. Ins. Co., No. 06-4335 (7th Cir. Oct. 1, 2007). The distinction mattered because claims under a fire insurance policy carry a one-year limitation period, which Hunt Construction missed.
The case arose out of Hunt’s contract to build a major terminal facility at Detroit’s airport for Northwest Airlines. Heavy rainfall delayed construction, forcing Hunt to pay penalties and incur other losses on the project. The company asked its builders risk carrier, Allianz, to pay for the damages, but Allianz refused. When Hunt sued, Allianz convinced the district court that, because the policy included coverage for losses from fire, the one-year limitations period applied to Hunt’s claim for construction delays.
The Seventh Circuit reversed. Per Judge Posner, the court traced the lineage of builders risk insurance to its origins in coverage for cargo losses at sea. The precursor evolved into "inland marine" insurance — at first for cargo traveling over land — and then into protection against losses to building projects, which serves as a "terminus for cargo" consisting of bricks, mortar, and other construction materials. A second line started with fire insurance, which later turned into "all risks" coverage (such as homeowner policies).
The history persuaded the court that Michigan didn’t intend the short limitations period for "fire insurance" to apply to a line that grew out of a different strand — sea cargo coverage.