What builders can do to avoid insurance problems.
To keep insurance problems in check, builders must be proactive. Here are a few steps recommended by attorney Jeffrey Masters:
Document attention to quality in the field. Construction defect litigation has accelerated builders' efforts to be proactive about quality and customer service. A proven safety record and quality control systems enforced on the site will impress insurers and help keep premiums from skyrocketing.
Have a plan to manage complaints. This is particularly important from a homeowners' association if you build attached units. This is different from customer service, emphasizes Masters. Appoint a “building liaison” to advise homeowners' associations on their concerns. Anticipate and be aware of problems as they arise. “It's hard for homeowners to sue a builder they like and know,” he says.
Manage customer expectations. If it's normal for stucco to crack after a year, tell the homeowner. People can accept almost anything if they're prepared for it.
Provide maintenance information to homeowners. “People don't drive cars 50,000 miles without an oil change, but they expect their homes to last 10 years without something breaking,” says Masters. “Help them understand that maintaining the home is their business.”
What subcontractors can do to avoid insurance problems.
Stephen Mysliwiec, a lawyer at the firm of Piper Rudnick, lectures frequently on the subcontractor insurance crisis. “It's not a good sign when so many people are interested in insurance,” he sighs. His primary advice: Insurers usually look at a subcontractor's claim history over the past five years. Subcontractors and general contractors should be “selective in choosing which claims to submit to insurers,” he suggests.
Mysliwiec's other recommendations to subcontractors include:
Demonstrable quality control and safety programs, enforced on the jobsite;
Have a strong contract between the subcontractor and the general contractor or builder, which contains mandatory dispute resolution procedures to avoid lawsuits;
Require all parties to maintain liability insurance and to name the trade contractor as an additional insured on the builder's policies;
Maintain a practice of obtaining certificates of insurance from the subcontractors who have no history of cancellation of insurance;
Avoid installation of high-risk materials such as asbestos or synthetic stucco (EIFS).