A New York Marine & General Insurance Co. unit is not obligated to pay an additional insured under its commercial general insurance policy for a faulty fire suppression and protection system, says an appeals court, in upholding a lower court ruling.

Media, Pennsylvania-based McShane Construction Company L.L.C. hired Omaha, Nebraska-based Mallory Fire Protection Services Inc. in 2012 to design and install a fire suppression and protection system for a 196-unit, $15 million apartment complex in Omaha, Nebraska, according to Friday’s ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in McShane Construction Company L.L.C. v. Gotham Insurance Company.

The subcontract between the two firms included a provision requiring Mallory to obtain insurance policies and list McShane as an additional insured on its CGL policy. Mallory did so in a policy with Morristown, New Jersey-based Gotham, a unit of New York Marine & General, according to the ruling.

McShane determined the system installed by Mallory was faulty, and to replace it allegedly incurred damages and losses of more than $614,291, according to the ruling. Gotham’s primary adjuster for the claim sent a report recommending paying $499,454 for the fire sprinkler system’s improper installation.

The insurer subsequently stopped communicating with McShane other than through an attorney and “ultimately refused to provide McShane with a formal coverage determination,” according to the ruling.

McShane filed suit in U.S. District Court in Omaha on various charges including violation of the Nebraska Unfair Insurance Trade Practices Act and Unfair Insurance Settlement Practices Act and breach of the implied covenant of good faith and fair dealing. 

The U.S. District Court granted Gotham’s motion to dismiss all counts. A three-judge appeals court panel upheld the ruling on appeal, with an affirming opinion.

Referring to the Nebraska laws, for instance, the ruling said, “Two of McShane’s claims are based upon Nebraska statutes that provide no private right of action and thus, are subject to dismissal for failing to state a claim upon which relief can be granted.”

Pointing to McShane’s bad faith charge, the ruling states, “McShane fails to allege Gotham lacked a reasonable basis for denying benefits because it failed to state a plausible claim that McShane was legally obligated to pay damages covered under the policy.”

“After giving all reasonable inferences to McShane and accepting the factual allegations as true while drawing on our judicial experience and common sense, we find that McShane has failed to state a claim upon which relief can be granted,” said the ruling, in affirming the lower court’s dismissal of the case.