Indiana has been added to the list of states whose courts rule that home builders’ general liability insurance should pay if sub-contractors’ defective work causes property damage to homes they helped build.
A recent Indiana Supreme Court decision made it clear that builders’ standard commercial general liability insurance covers damage to a home caused by a subcontractor’s poor work as long as the damage was unintentional. Shortly thereafter, the U.S. Court of Appeals for the Seventh Circuit overturned another Indiana case where a judge had ruled in favor of the insurance company.
“This decision from Indiana is important because there is a battle going on right now in courts around the country as to whether a builder is covered for claims alleging damage to a home caused by a construction defect” originating from sub-contractors, said Stephen R. Mysliwiec, of DLA Piper, who represents builders in product liability, construction defect, and insurance coverage cases.
“The states have struggled with this issue,” said Mysliwiec. But, over time, the number of states where courts have ruled in favor of builders has climbed and now represents the clear majority, he said.
Alaska, Arizona, California, Kansas, Florida, Mississippi, New Hampshire, Tennessee, Texas, Wisconsin, North Dakota, South Dakota, Minnesota, Maryland, Virginia, and now Indiana courts have ruled in favor of the builders, said Mysliwiec.
Only the courts in Iowa, Arkansas, Hawaii, West Virginia, and Pennsylvania have ruled in favor of the insurance companies denying coverage for sub-contractor errors that cause property damage. The courts in other states have either not ruled on the issue or have handed down inconsistent decisions.
Given that the case is an important one for builders, who increasingly hire sub-contractors to build homes, the National Association of Home Builders has been busily filing “friend of the court” briefs across the county, supporting the builders’ cases in such lawsuits, said David Jaffe, NAHB vice president and counsel.
These cases come up quite frequently and are obviously quite important,” said Jaffe. “The concern we have is that when the builders are making their claims, the insurers, in our estimation, are attempting to eliminate coverage for a claim the builder has paid to insure,” said Jaffe. “As you well know, in our industry these days most of the work is done by sub-contractors, so we feel very strongly that this is a battle that the builders need to be involved in.”
Jaffe said NAHB has weighed in on cases in Arizona, Florida, Kansas, Michigan, Pennsylvania, South Carolina, and Texas as well as various federal courts.
"We have had some very good success in the cases,” he said.
Teresa Burney is a senior editor for Builder magazine.