A hypothetical: The roof of a parking garage that is part of a condominium development partially collapses, destroying landscaping over the collapsed section of the roof and the floors underneath the collapsed section. The roof had been fully installed and the parking garage was being used at the time of the collapse, but work continued on the landscaping and the condominium units. The cause of the collapse is traced to roof beams not strong enough to withstand the load of the landscaping. The design of the parking garage called for weaker roof beams. The roof beams cannot be replaced, and consequently the landscaping over the rest of the roof must be removed and replaced with lighter materials to prevent further collapses.
This hypothetical, which is not an outlandish scenario in the construction business, raises a myriad of coverage issues under several different types of policies, including first party property, builder’s risk, general liability and professional liability policies. The attorneys in Reed Smith's Insurance Recovery Group have extensive experience advising policyholders and engaging in litigation regarding these types of coverage issues.
Back to the hypothetical: Insurers can be expected to contest coverage for the collapsed parking garage roof on a number of grounds. One perennially hot topic is whether construction defects involve an “occurrence” as that term is used in policies. Insurers argue that damages from construction defects are not covered “occurrences” because they stem from foreseeable business risks rather than fortuitous accidents; insurance policies are not performance bonds. However, there is nothing expected or intended about a roof collapse, even one due to defective materials or faulty work, and policyholders expect to be covered for such accidents. Courts have been split on this issue, and lately several state legislatures have stepped in with laws intended to clarify the situation (with mixed results).
Another common issue is which type of policy applies to a loss. Builder’s risk policies are intended to cover structures undergoing construction or renovation, but usually are limited to specific projects and time periods. General liability policies, by contrast, may exclude damage from “ongoing operations” but insure damage included in the “completed operations hazard.” Both builder’s risk and general liability policies may exclude professional negligence (e.g., the architect’s mistake in designing a roof with weak beams). The damage in that case may be covered by the architect’s professional liability policy.
General liability policies often attempt to exclude damage caused by “faulty workmanship,” and damage to the policyholder’s “work” or “products,” but then give back much of the coverage in the form of confusing and overlapping exceptions to the exclusions. For example, damage may not be excluded where the work is performed on behalf of the named insured by subcontractors. Ensuing loss to other property caused by defective work or products also is typically not excluded. Paul specializes in threading ways through the arcane policy language applicable to construction defects.
A commonly overlooked source of coverage is additional insured coverage under someone else’s policy. General contractors often require that subcontractors name them as additional insureds under the subcontractors’ policies, but fail to ensure this is done, or do not timely notify the subcontractors’ insurers of an accident. Additional insured coverage can be vital because additional insureds are often exempt from many exclusions applicable to the named insured, resulting in coverage that in many cases is broader for the additional insured than the named insured. Paul can assist policyholders in crafting contract language to obtain maximum additional insured protection under business partners’ policies.