Construction Defects Burning a Hole through the Residential Contractors Market
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Whether real or imagined, the threat of construction defects litigation has burned through the residential contractors liability insurance market like a California wildfire. Over the past couple of years, contractors and their agents across the nation have been left to sift through the ashes for coverage for an industry that is otherwise enjoying a booming housing market fueled by shifting populations and low interest rates. Availability of general liability coverage for residential contractors seems to be particularly tough in high growth states like California, Colorado, Florida, Nevada, Texas and Washington, which have suffered high numbers of construction defects liability cases. But even states that have kept a relatively low profile in terms of construction defects litigation are not immune to the effects of runaway lawsuits on insurers’ appetites to take on construction risks in the housing sector. “In some states, it’s construction defects and in other states it’s the fear of construction defects,” said Paul Norman of Norman- Spencer McKernan Agency (NSM) in Dayton, Ohio. He added that some insurance companies have modified “their construction underwriting strategies because of either the actual or perceived exposures. … Construction defects is not in every state, there are just fears of it. Because of that some companies have some very stringent underwriting practices for this class of business.” Darwin Lucas, a senior vice president of programs for RISC Inc. in Dallas, agreed that construction defect claims are “the primary contributor” to the market difficulties. “Everybody who touched a project is getting named,” Lucas said, “and that’s unfortunate, because 90 percent of them wind up getting out of it because they had nothing to do with the construction defect claim.” Builders and contractors working with new start tract home construction, condominiums and townhomes have been among the hardest hit, partly due to the relative ease of initiating class-action lawsuits in those types of communities. More : insurancejournal.com |