Insurance questions stall plans to demolish Harmon Hotel

Insurance questions have frozen plans to demolish CityCenter’s never-finished Harmon Hotel.

At a Friday hearing, District Judge Elizabeth Gonzalez withdrew the approval she granted on Aug. 23 for CityCenter, operated and half-owned by MGM Resorts International, to pull down the 26-story tower. She did so after FM Global, which wrote the insurance policy covering the Harmon’s construction, said it would need more time to complete an in-house investigation of CityCenter’s $393.8 million claim for the hotel as a total loss.

The judge will conduct another hearing on Dec. 6 to determine how much more time, if any, to give FM Global. Although the structural problems came to light more than five years ago, enough to raise questions about whether the Harmon would survive a major earthquake, CityCenter did not file the formal proof of loss for the entire building until Aug. 27.

LVI Services of Nevada Inc., the demolition expert CityCenter picked to dismantle and cart away the Harmon, secured approval from the Clark County Building Department on Thursday to proceed with the work. It began planning the project on Oct. 3 and expected to start removing the glass skin on Dec. 2.

“That’s where CityCenter finds itself on the horns of a dilemma,” City Center attorney Alexander Robertson IV said.

On one hand, he said, the demolition was moving ahead, with preliminary work underway, in response to a county demand on Sept. 4 to mend the Harmon’s deficiencies. Gonzalez, however, placed a hold on the process.

“We don’t want to cross the line with either authority,” Robertson said.

But Jeffrey Garolfalo, an attorney for subcontractor Ceco Concrete Construction, called this a “false dilemma.”

“They (CityCenter) are not ordered to demolish the building, they are ordered to abate” the dangerous conditions, he said.

The seeds of the latest turn in the expensive legal battle over assessing blame for the Harmon’s defects were planted at the Aug. 23 hearing. At the time, Gonzalez stressed, as she had previously, that she had not ruled on its safety but merely allowed CityCenter to exercise its business judgment with its property.

The insurance issue came up at the time, but no one from FM Global intervened. CityCenter attorneys said they started the insurance process years earlier, calling the proof of claim “a simple, fill-in-the-box form (that) provided no new information” in court papers.

FM Global saw it differently. A Sept. 3 letter from senior general adjuster Chris Roza contended that the proof of claim raised a “number of new issues” that far exceeded the previous claims. It would be impossible to pore over all the material from other experts plus check out crucial building components in person before the scheduled demolition, he wrote.

Three days later, Scott Stickney, a Seattle-based attorney representing FM Global, scorched the CityCenter attorneys for in-court comments he called “not only inaccurate, but disparaging of my clients … and me personally.” In particular, he contended, FM Global never had looked at evidence for many of the problems first raised in the Aug. 27 proof of claim. The previous submissions dealt only with the podium, the four floors at the base of the Harmon tower and certain components called link beams.

“If there was no claim presented, what were you (FM Global) doing out there conducting the most extensive investigation of anyone?” CityCenter attorney Mark Ferrario asked on Friday. “That was the practical reality of the situation.”

Nevertheless, former CityCenter general contractor Perini Building Co. presented the two letters as new information sufficient to halt demolition, at least temporarily. Perini has sued CityCenter for $191 million in unpaid bills, while CityCenter has countered for reimbursement on the Harmon as a total loss because of poor workmanship.

In July 2012, Gonzalez allowed demolition but then withdrew that permission three months later when CityCenter opted to collect more physical evidence to prepare for trial. When CityCenter finished what is called destructive testing, in which engineers knock away concrete from structural members to see the steel reinforcement inside, it again asked for demolition.

In August 2011, CityCenter drew up a plan for imploding the Harmon in much the style as other former Strip resorts used during the past two decades. Last month, however, a new blueprint called for taking it down floor by floor, finishing the job next November.

Contact reporter Tim O’Reiley at toreiley@reviewjounal.com or at 702-387-5290.