Sunday, Oct. 3, 2021 was a day when thunderstorms with high winds dropped 1.84 in. of rain on Buffalo, N.Y.

The damage to an ambitious adaptive-reuse project on the city's waterfront, which is turning warehouses into residential, retail and office space, led to a split between the developer and the project's former construction manager. 

The CM claims the developer skimped on builders' risk insurance. Now the firms and project sureties are in state and federal courts. 

Silo City Partners says its former construction manager, Buffalo-based Arc Building Partners, installed a defective roof, failed to protect gypsum drywall from rain and never followed the project architect's directions about what to do about water damage after the storm.

Silo City and Arc could not come to terms about the amount of damage, how much damaged drywall to replace and what it would cost.

After terminating Arc last summer and hiring a new CM, RP Oak Hill Building Co. Inc., Silo City sued Arc for about $20 million—$12 million of which it claimed was for work needed to complete Arc's $41-million contract. The developer had paid Arc $17 million up to that point.

Arc "inappropriately" proceeded with interior construction that was "wet and compromised" and "not new and free from defects," the developer claims.

The project's builders' risk insurer, Great American Insurance Group, rejected Arc's claim, the companies involved in the project said. The insurer is not a party to the lawsuits and its parent company, American Financial Group, could not immediately be reached for comment.

Silo City says the building should have been storm-proofed before interior wall construction. "The insurance was denied because interior damage didn’t occur in a fully enclosed structure and our position is you weather-tight the structure before you drywall," Silo City attorney Steven Klutkowski says.

Arc's sureties, Travelers and Liberty Mutual, also are defendants in the state-court lawsuit. Those companies initiated litigation against the developer in federal court anticipating a claim under the surety bond.

Originally filed last July, Silo City's state court breach-of-contract lawsuit is now in the discovery stage. Any trial, if it goes that far, is many months away.

Removing Wet Drywall

Arc's defense, in documents filed in state court, claims that Silo City and its architect wanted all installed drywall removed from the partially finished structure. They "were simply wrong" in requiring that all drywall and insulation "needed to be removed," the contractor argued. Arc stated that its consultant on the damage showed that "most of the installed drywall had not been compromised by the water infiltration."

Arc further claims that Silo City had failed to purchase enough builders' risk insurance, according to the terms of its contract with Arc, and that the policy would have covered costs involved in the damage.

The matter "became more unsettling" because "the owner had procured inadequate builders' risk coverage, and the builders' risk insurance carrier denied coverage," said the contractor.

The developer's parent company, Miami-based Generation Development Group, says the $65-million adaptive reuse of waterfront warehouse structures and grain silos will create lofts, offices and art gallery spaces. Completion is expected by the end of the year.