By Karalynn Cromeens, The Cromeens Law Firm PLLC
The first rule to understanding insurance is that insurance companies are in the business of collecting premiums and not paying claims. This means if the insurance company can find a way to get out of paying your claim they will. The second rule of insurance is you don’t just accept the decision of your first denial of coverage letter. From my experience in representing contractors, the first letter you receive from the insurance company after you file a claim is a letter denying coverage. At this point you need to take the letter to your attorney for a second opinion. When my clients bring me this letter, 90% of the time I am able to get their claim covered after reviewing the policy, current case law on the issue, and sending a demand for coverage letter. It is not uncommon for the denial of claim letter to be accepted at face value as the final decision and that is what the insurance company is counting on.
Generally speaking, most general liability insurance policies do not cover construction defects; however, they will cover any damages caused by the defect. For example, if someone on your team did not properly attach a plumbing fitting and when the water was turned on it flooded the entire house, your general liability insurance would cover the damage caused by the flooding but not the cost to repair the defective pipe. You also need to be aware that although your general liability policy will not cover construction defects, it may still cover the cost of an attorney to defend you in a construction defect case if there is a claim of negligence or property damage caused by the defective work. As a standard operating procedure, you should turn over every demand letter and/or lawsuit you receive related to claims of defective work to your insurance company to determine if there is coverage. A copy of these same documents should also be sent to your attorney, so you don’t miss any deadlines.
Another type of loss your general liability insurance policy does not cover is injury to an employee. This type of injury will be covered by workers compensation insurance. Where contractors usually get into trouble on this issue is when they hire subcontractors to do the work but don’t have a written subcontract. If you hire a subcontractor to do any work for you, they should have a workers compensation policy to cover any injury to their employees. If someone gets hurt on the jobsite and the subcontractor fails to obtain workers compensation insurance and you don’t have a written subcontract you will most likely become a party to a lawsuit for personal injury that will not be covered by your insurance. I have had this happen to several clients. The best way to prevent this situation is to have a good written subcontract. What usually happens when you don’t have a written subcontract is the argument will be made that the injured worker was actually your employee, and you should have had workers compensation insurance. That is when the fight becomes really expensive.
The most important thing about insurance in the construction industry is having an insurance company that is familiar with the specific type of work that you do. They need to be familiar with the type of issues you will most likely have and make sure you are covered for those types of issues. For example, I once represented a painting contractor who while painting the exterior of a building accidentally sprayed paint on the windshield of five cars. His insurance denied the claim to cover the cost of cleaning and replacing some of the windshields. For a painting contractor overspray is a common issue that can occur and having insurance that covers that type of claim is mandatory. Take the time to find an insurance company that is familiar with construction and your specific type of work. Ask them questions to make sure the insurance policy you purchase will cover the types of issues your company will face. Don’t be afraid to shop around and interview different companies. Nothing will set your mind more at ease than knowing you have the right policy and coverage for your company.
About the Author
With more than 18 years of experience in construction and real estate law, Karalynn Cromeens has filed more than a thousand lawsuits to foreclose or remove mechanics liens successfully. Her family also owns a material supply company, providing Karalynn first-hand knowledge of the construction industry. This personal understanding, combined with her extensive legal experience, guides The Cromeens Law Firm’s true purpose— To protect and defend all that you have worked hard for and be your partner in business. She is also a best-selling author and podcast host for Quit Getting Screwed.
