First, find out if you have exclusion CG2294 on your policy. If you do, inquire about purchasing a buyback or ask to get a quote from another carrier that has a less restrictive version that provides coverage for resulting damage to non faulty work.
Second, practice contractual transfer through the use of a very good subcontractor agreement. We can provide an excellent form for you to use. The subcontractor agreement should include mandatory insurance requirements for the sub including Work Comp and General Liability. Each policy must meet certain minimum specs. Quality General Liability insurance carried by your subs is your first and best line of defense against construction defect lawsuits. In addition, the agreement should contain a hold harmless / indemnification provision in your favor.
Third, attempt to do business only with subs that have been in business for a number of years and have an excellent reputation for quality workmanship and standing behind their work. These subs are more likely to be in business over the long term which makes it more likely that they’ll continue to carry a General Liability policy that will be in force for years into the future. Remember, their policy will only respond to a lawsuits if it’s in force at the time of the occurrence of the bodily injury or property damage. A lot of builders don’t understand this and mistakenly think that the subs coverage can be triggered merely by being in force when the work occurred.
Fourth, consider using a Home Owners Warranty product on the sales of all new home starts. Many experts believe that the dispute resolution services that are provided by these warranties help to prevent construction defect lawsuits. Also, at least one home owner warranty product provides coverage for soil movement claims.
Fifth, if you have concerns about the common exclusions for EIFS, mold, or pollution, policies can be purchased from the high risk marketplace to cover these exposures. Most of the minimum premium are in the $2500 to $5000 range and prices can increase from there depending on the amount of work that you’ll be performing.
And finally, make sure that you have a well documented file and keep complete records including certificates of insurance from subs as well as all subcontractor agreements. Also, it often times pays to be willing to spend several thousand dollars to make a claim go away as opposed to always standing on principal. You need to protect your insurance loss record to make sure that future coverage is affordable and available.
* If you have Exclusion CG2294:
– See if your carrier offers a buyback
– Find another carrier that has a less severe version
* Practice contractual transfer through mandatory subcontractor agreements with all subs with
– Minimum insurance requirements that are reviewed and enforced
– Hold harmless / indemnification provision in your favor
* Attempt to do business with stable subs who have been in business for a long time
* Consider Home Owner Warranty Products to reduce the chance of litigation
* Consider special policies for EIFS, Mold, Pollution
* Document your construction file and be proactive in resolving problems
Hopefully the information in this article will help you to better understand how to protect yourself from construction defect lawsuits. Please contact my office and ask for our contractor department if you have any remaining questions. Thanks for your time.