WIN Magazine - Summer 2011 - (Page 8)

FEATURE BY RANDY J. MANILOFF, PARTNER, BUSINESS INSURANCE PRACTICE GROUP WHITE AND WILLIAMS, LLP IF YOU BUILD IT, THEY WILL COME… AND SUE YOU Claims for construction defects mount, along with disparity in what’s covered HEN IT COMES to claims for latent injuries and damages, such as asbestos and hazardous waste, some would say they were never even contemplated under the policies later – sometimes decades later – called upon to respond to them. So, it’s not surprising such claims raised issues sometimes viewed by courts as vexing. The result was a lack of unanimity as different schools of thought developed in response to novel issues. This is all understandable. But claims for coverage for construction defects and the damage they cause present a much different situation. It is unquestionably contemplated such claims will be made under commercial general liability policies – especially when the insured is in the construction business. For this reason, it is surprising so much disparity has developed around the country in case law over treatment of such claims, especially those involving relatively similar facts and oftentimes identical policy language. In addition, the simple number of claims and judicial decisions involving coverage for construction defects is staggering. As one court recently put it, and aptly so, when describing a home builder’s response to the situation, “It is not too much of an exaggeration to say that as soon as the last nail in a project is hammered and the keys are handed over to the homeowners, the ink on the first lawsuit over the construction of the homes is starting to dry.” (Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1482 (2010). There are a lot of claims for construction defects, which gives rise to a host of problems for wholesale insurers, agents and policyholders. Most notably, 8 | v i e w t h i s i s s u e a t | W insurers face significant financial exposure – for both indemnity dollars and defense costs. As a result, those in need of coverage may be confronted with limited choices, endorsements narrowing coverage and lack of affordability. Others involved in the insurance transaction face their own challenges when it comes to construction defect claims. Because there is such a welter of disparity in state law over what’s covered and what’s not when it comes to construction defect claims, those involved in the marketing of CGL policies – especially to customers at risk for such claims – may have a difficult time describing available coverage with any certainty. Simply put, a construction defect loss fully covered in one state may be entirely precluded from coverage in the state next door. So what you know about one state’s law may be of little value when required to describe availability of coverage in another state. What’s more, while general knowledge of the issues is important, court decisions within the same state sometimes turn on case-specific nuances. And as if all these challenges are not enough, they are exacerbated by new judicial decisions, addressing coverage for construction defects, being issued several times a month. THE “OCCURRENCE” BATTLE There are generally two schools of thought on whether faulty workmanship-related property damage qualifies as having been caused by an accident. One school holds that defective workmanship, standing alone, which results in damage solely to the insured’s completed work product, is not an accident, and, hence, not an “occurrence.” The common rationale for this conclusion is that an “accident” is an event that takes

Table of Contents for the Digital Edition of WIN Magazine - Summer 2011

If You Build It, They Will Come...and Sue You
When the Enterprise is on hold
Report from Capitol Hill: Insurance Legislative Developments
The Surplus Lines Insurance Multi-State Compliance Compact
America's Skilled Workers Crisis
Emergency Response to Catastrophic Trucking Accidents
Wholesale Insurers & Agents Can Thwart Terrorists
Index to Advertisers/

WIN Magazine - Summer 2011