Construction defect claims come in a variety of forms depending on the contractual structure of the project, warranties provided by the parties and implied or statutory obligations. Mandatory pre-suit procedures intended to reduce litigation by encouraging parties to resolve disputes by making repairs or entering into a financial settlement without resorting to litigation are the law in more than a dozen states.
These so-called construction defect laws typically require an owner to provide written notice to their contractor and design professional specifying all alleged construction and design defects. It is then the contractor’s, subcontractor’s or design professional’s obligation to investigate and respond to the owner’s claims.
The costs of investing and responding to pre-suit construction defect claims can be significant. The process is often drawn out by protracted processes led by plaintiffs’ lawyers and claims-oriented consultants. Contractors, subcontractors and design professionals must decide when and if they should notify their insurance carriers and request that the insurer pay the costs related to participating pre-suit and paying for experts.
The answer lies in the fine print of each insurance policy. All insureds must provide timely notice of any claim that is covered by the insurance policy.
However, not all insurance policies define a claim in the same way. Some policies define claims broadly to include dispute resolution procedures, such as voluntary or mandatory pre-suit proceedings to resolve construction defects. Some polices give the insurance company the discretion to participate in pre-suit proceedings after receiving notice.
If the contractor, subcontractor or design professional elects to trigger insurance coverage, then it is incumbent on them to notify their insurer of the pre-suit claims and specifically request the insurer’s consent to the process before participating in the process.
Contractors, subcontractors and design professionals that receive a pre-suit notice and demand to cure defects should take care to consult with their construction attorney to review their insurance coverage and determine whether and how to involve insurance in the process. The determination will depend on whether any of the defects alleged pre-suit are covered by insurance, as well as the specific triggering language of all applicable insurance policies.
The insured will need to balance the scope and availability of insurance coverage, the obligation to comply with notice requirements in the policy of insurance, and the impact that insurance company involvement will have on the resolution of claims and future insurance premiums.
