Construction Defect Exclusions

The first is the EIFS or synthetic stucco exclusion. This exclusion has appeared on all builder policies for many years. If you’re a builder and are still installing EIFS or doing EIFS repair work, you need to buy a special General Liability policy from the high risk marketplace to cover this exposure.

The next is the Soil Movement exclusion. Expansive soils have been a problem in some parts of the country and have been a major source of construction defect lawsuits. It’s possible to pick up coverage for this risk through certain homeowners warranty products such as HBW 2-10.

The Fungus, Mold, and Mildew exclusion was added almost immediately when the toxic mold lawsuits began to appear. This exclusion effectively cut off the builder’s General Liability policy as a funding source for plaintiffs attorneys looking to make toxic mold the next EIFS gravy train. This exclusion is usually limited to property damage so it’s possible to still have some coverage if the lawsuit papers allege bodily injury or sickness in addition to property damage. If this is the case, the policy will typically provide legal defense for the entire lawsuit but will only pay any settlement or adverse jury verdict attributable to the bodily injury portion of the damages. If you’re concerned about this exclusion, you can buy a special Mold And Pollution Liability policy from the high risk marketplace that has a minimum premium that starts out in the $2,500 to $5,000 range.

The Absolute Pollution exclusion is a powerful exclusion that can have consequences well beyond what you normally think of as pollution. This is exemplified in the recently emerging Chinese Drywall crisis where it’s alleged that drywall from certain plants in China releases noxious fumes that cause corrosion of metal in the home, a foul smelling odor, and health problems. Pollution is defined as any solid, liquid, or gaseous contaminant or irritant. The insurance carriers plan on denying these claims by using the Absolute Pollution Exclusion.  Once again, if you’re concerned about this exclusion, you can buy a special Pollution Liability policy from the high risk marketplace.

The Products And Completed Operations exclusion has the most devastating impact of all the exclusions and is not acceptable. Quite simply, this exclusion eliminates coverage for all bodily injury and property damage that occurs after the home has been sold. You definitely don’t want this one on your policy.

And finally, the most complicated and difficult to understand of all the construction defect exclusions is called: Damage To Your Work Performed By Subcontractors On Your Behalf which is also known as form number CG2294. I will refer to this exclusion as CG2294 from now on. Before I explain this exclusion, I need to take a minute to review the basic “property damage to your work exclusion” under the General Liability policy prior to the introduction of CG2204.