Construction Defect Disputes and the Abandoned Policyholder: Getting the Carrier to the Table

by JAMS
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There is much that can go wrong in any large construction project: improper installations, defective products, errors and omissions made by designers, unexpected site conditions—the list is long. Insurance coverage or a performance bond often means the difference between compensating injured parties and a nightmare of litigation and financial distress. Unfortunately, insurance carriers often choose to wait while parties take their disputes through lengthy, expensive litigation, often adding yet more delays to the project. Getting insurers to the table before litigation would save all parties significant time and money. This article is a case study in one method of bringing insurers into settlement discussions early on through cooperative nonbinding arbitration among the parties, followed by mediation with the insurance carriers.

The main problem for parties seeking insurance coverage in complicated construction defect cases is that there are too many variables. There is often a tangle of liability issues, as well as confusion over which party the insurer is obligated to pay. Further complicating matters, defective construction claims may involve (1) builder’s risk insurance (first-party coverage), (2) liability insurance (third-party coverage) and (3) a performance bond and the responsibility of the surety behind the performance bond. Sorting this out can cause significant delays, particularly if a carrier takes the position that it does not owe coverage or that it is reserving its rights and refuses to come to the table for settlement discussions until after the other parties have fully litigated liability.

Originally published in Law.com on June 6, 2014.

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