Contractors & Construction Defect Coverage: Build a Stronger Approach to Insuring Contractors, Part 1January 28, 2018
By: Kyle Domire, AVP, Broker, Worldwide Facilities – Salt Lake City
Retail insurance agents and their clients throughout Colorado and in multiple western states face a problematic coverage scenario: a lack of market availability for construction risks. However, help is available with the assistance of a seasoned wholesaler who possesses not only the market access, but more importantly, coverage expertise with the ability to craft coverage details so vital in construction insurance.
In three blog posts, we’ll explore the challenges facing retail agents and their clients. Let’s start by reviewing a history of construction defect in Colorado and beyond.
A Brief History of Construction Defect Litigation in Colorado
Colorado was the first state to define construction defect as an occurrence. In 2010, the Colorado state legislature enacted Colorado Code § 13-20-808. While this law did not immediately cause a hard market across all construction, it did cause many carriers to stop writing multi-family homes, i.e., townhomes and condominiums. New residential construction on the Front Range of Colorado—Boulder, Denver, Greeley, and Fort Collins—is currently one of the hottest markets in the nation, and insurance capacity remains good for single-family housing. However, many agents cannot write more complex construction products due to today’s “just say no” underwriting climate.
Each state approaches coverage differently based on court decisions, case law, and legislation. For example, in Colorado, construction defect is an occurrence while nearby in Wyoming, it is not. Utah has delivered a mixed message in construction defect decisions.
Add to the mix two other variables—new legislation in conjunction with emerging court decisions—and construction defect litigation can change overnight. When exposures change, so do underwriting guidelines. This problem has been particularly acute in Colorado where the legislature recently took steps to address the construction defect issue in multi-family housing.
The Colorado legislature recently passed House Bill 17-1279, which was signed into law on May 23, 2017. This law requires condominium owners to obtain approval through a vote of unit owners before they can file a construction defect claim. One law firm specializing in construction defect litigation referred to it as a “misguided attempt at construction defect reform.” To date, many carriers are still taking a hardline stance, refusing to write multi-family housing exposures in several states including Colorado, Arizona, and Nevada. Many contractors face unit count restrictions on their projects, as well as other barriers. Furthermore, many insurers have a narrow appetite for the insured’s potential operations – for example, contractors who install exterior insulation and finish systems (EIFS), waterproofing, or fire sprinklers have even additional hurdles to clear as far as underwriting appetites are concerned.
Even seasoned agents who specialize in coverage for contractors find it difficult to navigate this ever-changing maze and assist their clients with adequate coverage.
- How can you ensure your contractor clients have the appropriate coverage in all the states where they operate?
- How can you confidently approach new clients if you lack confidence that you can place the risk once the contractor agrees to work with you?
In our next post, we’ll discuss a few ramifications of the marketplace and the importance of crafting the right coverage package for your clients. For more information, contact Kyle Domire at firstname.lastname@example.org or (801) 979-5081.