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Liability Insurance for Construction Defects

Liability insurance coverage for certain construction defects changed with the 2010 Indiana Supreme Court decision, Sheehan Construction Company, Inc., et al. v. Continental Casualty Company. In the Sheehan case, the Court reinterpreted an insurance company’s obligation to its builder-insureds under the builder’s commercial general liability policy with regard to work performed by subcontractors. Prior to this case, the Indiana courts generally held that the standard ISO commercial general liability policy language contained an exclusion that precluded coverage for property damage, among other things, resulting from a subcontractor.

In this decision, the Indiana Supreme Court noted that the standard commercial general insurance policy form insured against liability for “property damage” that is caused by an “occurrence” (i.e.; damage that is accidental rather than expected or intended), thus opening the door to insurance coverage for a subcontractor’s faulty workmanship.

While this case still stands in the State of Indiana, a battle continues to wage on a national level between insurance companies and builders as to whether construction defects can constitute “occurrences” under the commercial general liability policy provisions. Decisions on this issue have been handed down already this year by the respective Supreme Courts in the states of North Dakota, Alabama, Connecticut, West Virginia, and Georgia, landing on both sides of the fence. Thus, the issue remains in the forefront for the construction industry and will likely remain for some time.

It is important for builders within the State of Indiana who experience issues with subcontractor work to consider submitting a claim for a coverage determination. In addition, given that some construction defect issues do not surface for many years, builders need to be diligent in retaining copies of all insurance policies and endorsements, as well as agreements, quotes and contracts with subcontractors, as part of their permanent files.

About the Author

 

Shannon Frank

Shannon S. Frank, a Partner at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, has more than 20 years’ experience in the practice of business law, construction law, estate planning and probate administration, health care law, and real estate law. Shannon takes prides in giving exceptional service to her clients, recognizing that relationships with clients play a significant and essential role in providing tailored and comprehensive legal advice.