From designing floor plans to driving the last nail, building a house is no easy task. Cadres of contractors and subcontractors in the carpentry, electrical, plumbing, and construction fields all have skin in the game.
With such an involved process, builders and their subcontractors need to plan for unforeseen events. We all hope that the proverbial rainy day won't come, and we do everything in our power to prevent it, but being prepared for it is an essential business practice. For that reason, many builders purchase expensive insurance policies to cover issues that may arise during home construction.
So it's very concerning when insurers attempt to evade coverage for items builders typically expect to be included in their policy. Insurers either may use endorsements to exclude features such as drywall containing sulfur or exclusions like "contractual liability" to deny construction defect claims.
A legacy of the problems with defective drywall manufactured in China is that some carriers are using restrictive language that excludes drywall products containing sulfur or sulfur derivatives. The problem? All drywall has sulfur. So a builder named on the drywall subcontractor's general liability policy that has the "drywall with sulfur" exclusion may not be covered for drywall claims. To address this problem, the NAHB has collaborated with the Gypsum Association to draft alternative language that builders and their subs can give to their insurers, brokers, and agents.
Insurers increasingly are citing the contractual liability exclusion to avoid paying for damages related to residential construction. This narrow provision does not cover "bodily injury" or "property damage" because builder liability is assumed in the contract or agreement. Conflicts over the contractual liability exclusion may end up in court. When this happens, NAHB's legal team files amicus briefs in support of builders and homeowners seeking compensation from insurers.
I am pleased to report that we've had significant courtroom victories. In June, the U.S. Court of Appeals for the 11th Circuit reversed a lower court ruling in Pennsylvania National Mutual Casualty Insurance Co. v. St. Catherine of Siena Parish in Mobile, Ala., stating that the contractual liability exclusion was not applicable and the insurer was liable to pay for the "damages" in question.
This comes on the heels of a similar legal victory in October, when the Fifth Circuit Court of Appeals determined in Crownover v. Mid-Continent Casualty Co. that a builder who agreed in his contract to repair damages caused by a failure to perform in a good and workmanlike manner did not violate the contractual liability exclusion.
The NAHB understands the importance of reliable insurance—especially considering the expense of these policies. In addition to creating language for insurers and filing amicus briefs, the NAHB constantly monitors the landscape and keeps its members informed.
The NAHB will continue to employ legal and legislative advocacy measures to ensure that insurers follow through on their obligations. Home builders need to have high-quality insurance every step of the way.