Construction Defect Crisis

The building industry is constantly experimenting with new building products and techniques in an effort to reduce costs, become more efficient, and to add value. Sometimes these products don’t stand the test of time and unforeseen problems can arise that result in construction defects. Examples include EIFS or synthetic stucco, masonite, Georgia Pacific siding, polybutylene plumbing, and more recently, Chinese Drywall.


The full weight of the construction defect crisis began to be felt by the insurance industry about ten years ago. Regionally, in the southeast, the first wave of large scale lawsuits arose over EIFS or synthetic stucco. The insurance industry fully funded a plaintiff attorneys gravy train in this area since most of the costs were covered by insurance policies of the manufacturers, distributers, builders, and installers. The EIFS epidemic seemed to fuel more and more construction defect lawsuits of all different types.


As a result, two trends emerged. The first was that most insurance carriers left the market place and refused to write General Liability insurance for builders since they reasoned that they couldn’t make a profit at any premium level. A perfect example was the Maryland Casualty / Zurich program known as HBIS. They were the leading insurer of builders in the country and they just closed shop.


The second, was that the carriers that remained in the market for builders learned a lesson from the EIFS epidemic and decided that they didn’t want to be a funding source for another plaintiff attorneys feeding frenzy. They decided to attack the problem by adding a multitude of exclusions to the policy form to reduce and/or eliminate coverage for construction defect lawsuits.