A Travelers Cos. Inc. unit is not obligated to provide coverage to a construction firm under its builders’ risk insurance policy for water damage because of an exclusion for structures that existed prior to the policy’s inception, says an appeals court in affirming a lower court ruling.

The University of Denver hired Greenwood Village, Colorado-based Gerald H. Phipps Inc. to renovate and expand its library, according to Thursday’s ruling by the 10th U.S. Circuit Court of Appeals in Denver in Gerald H. Phipps Inc. et al. v. Travelers Property Casualty Co. of America.

In 2012, GHP was completing installation of a new roof on the library when water from melting snow leaked into the building and damaged existing drywall and insulation in the stairwells and elevator shafts that it had planned to preserve and update, according to the ruling. 

While GHP had completed some preliminary work, the firm had not yet installed any new material, updated any lighting fixtures, or patched and painted any existing drywall in the damaged areas, the ruling said.

Travelers initially advised GHP the loss was covered, and the company incurred $805,000 in costs to remove asbestos, among other actions, before it could proceed with its planned renovations in those areas.

Travelers subsequently notified the firm it was not covered under a provision in its policy that expressly excludes buildings or structures that existed at the site before the policy’s inception.

After being asked to reconsider its denial, Travelers acknowledged the firm had completed preliminary work in the damaged areas before the water damage occurred, but said its investigation showed the water damaged only portions of the existing structure, and the preliminary work did not include installing any new materials or items in the damaged areas. It reaffirmed its decision to deny coverage.

GHP sued Travelers, seeking a declaratory judgment on coverage and asserting claims for breach of contract and bad faith, in U.S. District Court in Denver.

The District Court granted Travelers summary judgment dismissing the case, which a three-judge panel unanimously affirmed.

“There’s no question that the damaged areas already existed at the job site before the policy’s inception,” said the ruling. “Thus, the damaged areas would be excluded from coverage under the ‘Builders’ Risk’ definition’s exclusionary language.”

“In sum, because GHP doesn’t seek damages for a loss to covered property, we affirm the district court’s order granting summary judgment” in Traveler’s favor, said the ruling, in affirming the lower court’s decision.