Insurers fight coverage of $49.5M award for UIHC Children’s Hospital windows

IOWA CITY — Four months after the University of Iowa won a $49.5 million arbitration award over faulty and defective windows installed up and down its 14-story Children’s Hospital, coverage of that cost hangs in limbo — with insurance carriers for the company at fault asking a judge to find they do “not have any obligation” to pay.

“The Travelers policies are subject to various professional services exclusions,” according to a complaint filed in U.S. District Court on Oct. 10 by American Guarantee and Liability Insurance Company, an Illinois-based insurance company that’s part of the larger Zurich Insurance Group.

“The exclusions set forth in the Travelers policies therefore exclude coverage for the final award and Zurich is entitled to a declaration that it has no obligation under the Travelers policies or the Zurich excess policies to indemnify Cupples.”

University of Iowa Health Care in 2013 contracted with Cupples International Inc. — a Missouri-based architectural manufacturing company specializing in custom “curtain wall systems” — for the design and development of glass encasing its Stead Family Children’s Hospital.

Cupples was responsible for the $25.3 million curtain wall system for levels three through eleven of the Children’s Hospital — including “patient windows” on levels three and levels six through 11; “slot windows” on levels three through 11; and “ribbon windows” on levels four and five.

About a year later, UIHC contracted with Minneapolis-based Knutson Construction to install — among other things — windows on levels one, two, and 12, along with a bridge connecting the new hospital to the main campus. Knutson, according to court documents, subcontracted with Cupples for that work.

Even before the more than $400 million hospital opened in 2017, university officials began noticing faulty work.

In January 2015, a patient window was found broken on site, according to court documents. Less than a year after the hospital opened, UIHC in December 2018 discovered breakage in a window on Level 5.

It discovered more damage in 2019 — compelling UIHC to hire a consultant to investigate the extent of the flaws “in anticipation of potential litigation.”

And in 2021, the university went to the Board of Regents for the first time to request permission to spend $10 million to $15 million replacing windows on levels four and five that were suffering from “blemishes, delamination, and cracking.”

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‘Near total window replacement’

UIHC administrators would return to the regents on multiple occasions with requests to spend millions more on additional Children’s Hospital window repairs — eventually bringing the board in February 2025 a request to spend $52.5 million on the “near total window replacement effort.”

To mitigate the risk of “potentially life-safety threatening conditions,” UIHC — until it could get the windows permanently replaced — installed protective film and clips to prevent glass from falling, should any windows break.

As costs accumulated, UIHC in June 2022 sued both Cupples and Knutson — with Knutson later filing a cross-claim against Cupples asserting breach of contract.

On Jan. 3, 2025, the underlying lawsuit was dismissed in favor of arbitration — and UIHC five days later settled with Knutson, which “assigned its claims against Cupples to (the university) in exchange for dismissal.”

Following an arbitration hearing from Feb. 24 to March 14, a panel of three arbitrators on July 3 found “Cupples shall pay the Board of Regents the total amount of $49,462,962.”

That award covered the university’s mitigation efforts, replacement of the windows, and all the design and management involved with the replacement.

“The board did not seek consequential damages, nor did it request attorneys’ fees in any filing in this arbitration,” according to court documents.

In arriving at its conclusion, the panel found the windows “were improperly fabricated and did not comply with the specifications for the project in that they were not free from material faults and defects.”

Cupples argued the window design was to blame, “but as Cupples was contractually obligated both to design … and to fabricate the glass pieces, the argument does not diminish the responsibility of respondent for the unsatisfactory performance of the (windows) and the resulting damages,” according to the panel’s finding.

In breaking down the final award, the panel reported UIHC already had spent $19 million and still needed to spend $30.4 million.

Insurers disclaim coverage

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With the debt now assigned, Cupples took the award to its insurance provider Zurich — which disclaimed the obligation because, among other things, it didn’t seek compensation for “property damage” due to an “occurrence,” per the insurance policy.

“The only theory of recovery asserted in the arbitration moreover, and the basis for the final award, is breach of contract; namely, the windows designed, fabricated and installed by Cupples have failed and, accordingly, Cupples has materially breached its contracts,” according to Zurich’s lawsuit.

Like Zurich, Starr Indemnity & Liability Company — a second insurance provider on the project — has filed a complaint in U.S. District Court seeking “a declaration that it has no indemnity obligation with respect to the final award under the excess insurance policies issued to Cupples.”

“The excess insurance policies issued by Starr do not provide coverage for the costs associated with the replacement of Cupples’ work and product, i.e., the windows and, accordingly, Starr has disclaimed coverage and initiated this declaratory judgment proceeding,” according to the complaint.

“The final award notes that the damage to the (windows) was progressive, and delamination was observed during the course of the construction (and prior to the inception of the Starr excess policies),” according to the complaint. “The issues with the glass began before the inception of the Starr policy periods and therefore there is no coverage under the Starr excess policies.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com