Mandalay sues insurer over sinking costs

Grace Leong

Friday, Feb. 25, 2000 | 11:39 a.m.

Mandalay Resort Group of Las Vegas sued three of its insurers to force them to pay costs it incurred to correct the $950 million Mandalay Bay's subsidence problem in 1998.

The resort spent between $8 million and $10 million to install 536 metal cylinders under the 43-story, 3,700-room building, after it began sinking during construction in June 1998, which resulted in hairline cracks in the valet parking garage, warped door frames, windows and other structures. The hotel-casino sank 18.8 inches during construction as its weight squeezed moisture out of an underlying acquifer. In a Clark County District Court suit, Mandalay alleged Allendale Mutual Insurance Co., FM Global, Factory Mutual Insurance Co. doing business as Layne Associates Ltd. Insurance -- which paid $1 million of its total claims -- improperly dismissed the rest of its claim and attributed the subsidence problem to "faulty workmanship, construction, design and materials."

The resort, after consulting geological and construction experts, hired Nicholson Construction Co. and subcontractors to reinforce the building "at well above the initial cost of construction of the property," the suit said. "Our original estimate was $10 million, and our overall budget is a little under $1 billion. So the costs associated with remediation are relatively insignificant compared to the overall costs of the project," Mandalay spokeswoman Sarah Ralston said, declining to comment on the size of the claims sought.

The resort accused Allendale Mutual of breaching its three-year contract, which it said extended policy coverage to include physical losses or damages caused by any natural or man-made movements including earthquakes, landslides or subsidence.

"It is not uncommon for insurance buyers to have a difference of opinion," said Bill Wright, Layne Associates' spokesman, declining to comment further.