In Luke, Inc. v. Berkley National Insurance Company, 2025 WL 2210783 (W.D. Tenn. 2025), the United States District Court for the Western District of Tennessee determined that the “completion” of a construction project for purposes of coverage under a builder’s risk policy concerned the permanent physical elements of the structure, and not whether it was fully operational as a business.
Background
An additional insured project owner sought coverage under a commercial builder’s risk insurance policy after a burst bathroom pipe caused water damage to a nearly completed skilled nursing facility. The project owner made a delay-in-construction claim related to the flood, which the insurer denied on the grounds that the facility was completed before the flood occurred. All that remained was an inspection of a nurse call system, which was necessary to obtain a certificate of occupancy or a license to operate. There was nothing left to be constructed, erected, fabricated, or installed.
In this regard, the policy excluded coverage for loss caused by a “delay in the completion of construction, erection, or fabrication of a building or structure or any portion of a building or structure.” However, the Delay in Completion Coverage Part restored coverage for certain expenses incurred during the “delay period,” and included the following relevant definitions:
- “Delay” means an interruption in the construction, erection, or fabrication of a “building or structure” caused by a covered peril.
- “Delay” does not mean an interruption in or extension of construction, erection, or fabrication caused by or resulting from a change order, design change, or other action or decision that is independent of direct physical loss or damage caused by a covered peril for which payment is made under the Builder’s Risk Coverage [F]orm to which this coverage part is endorsed, whether occurring prior to or after such physical loss or damage.
- “Delay period” means 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 Builder’s Risk Coverage [F]orm to which this coverage part is attached. This is not limited by the expiration date of the policy.
Analysis
The primary question was whether the flood caused an “interruption in the construction, erection, or fabrication” of the facility to trigger coverage under the Delay in Completion Coverage Part. In other words: was it complete at the time of the flood when all that remained was the inspection of the nurse call system? The project owner framed the definition of “completion” in terms of the facility being fully operational. The insurer framed the definition of “completion” in terms of the physical building or structure.
The Court concluded that based on the text of the policy, as required by Tennessee law, the “building or structure” pertained to the permanent physical elements of the facility, not its status as fully operational as a business. As it was undisputed that no items needed to be constructed, erected, fabricated, or installed, the facility was complete at the time of the flood. Thus, the flood did not delay the completion of the facility and did not trigger coverage.
Conclusion
Luke reinforces a critical distinction is builder’ risk coverage – depending on the policy language, “completion” of a project occurs when the construction of the physical structure is achieved, not by operational readiness. This interpretation also aligns with the intent of builder’s risk insurance, which addresses property damage risks during construction, prior to the shift to operational all-risk coverage. As the Court in Luke noted, adopting an interpretation to the contrary could render a portion of the policy meaningless.