OVERCOMING OBSTACLES TO INSURANCE COVERAGE FOR CONSTRUCTION DEFECTS

1. Introduction
2. New Policy Limitations
1. Elimination of the Subcontractor Exception By Endorsement
2. Habitational Exclusionary Endorsements
3. Restrictive Additional Insured Endorsements
1. 1985 CG 20 10
2. 1993 Edition of CG 20 10
3. 2001 CG 20 10
4. 2004 Edition of CG 20 10
4. Contractual Liability Coverage Restrictions
5. Other Restrictive Endorsements
6. Design-Build Liabilities
3. Prospects and Alternatives?
1. Market Cycle
2. Alternative Approaches and Products
1. Rip and Tear, Construction Defect and GAP Insurance Policies
2. Wrap Up Policy Programs
3. Subguard Programs
4. Risk Retention Groups
5. Warranty Funds
6. QA/QC
4. Court Imposed Limitations
1. Traditional Coverage Approach: Circumscribing “Business Risk”
2. “New Approach” Occurrence Cases
1. Texas Cases
2. Other States
3. “Traditional” Texas Occurrence Cases
4. Other States: Traditional Approach
5. Economic Loss Versus “Property Damage”
1. Economic Loss and Defective Work Claims
2. The Economic Loss Rule
3. The Economic Loss Rule and Insurance Coverage
6. Conclusion

Appendices

Ask any general contractor, subcontractor, and particularly any residential contractor. Insurance coverage for defective construction has been constricting steadily over the past several years. Two sources of constriction of coverage are the subject of this paper. The first limitation is the result of efforts by the insurance industry to amend the policy to eliminate or limit coverage for risks that are perceived to be difficult or impossible to underwrite. The second type of limitation is imposed through interpretation of the policy language by the courts.

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