Construction-related litigation is all too common these days.  Even small cases that resolve quickly can accumulate $100,000 or more in attorneys’ fees. As a result, general liability insurance is a must for contractors doing business in California.

Unfortunately, insurance documents themselves are often difficult to understand, leaving policyholders uncertain about their coverage when claims come up.  As a result, when contractors do tender a defense of a lawsuit to their carriers it is often after the carrier denies the claim.

For construction general liability polices, insurance generally covers “resultant property damage” or injuries.  This means that the work performed by the contractor has somehow caused damage such as a water leak, cracking, settling or other physical damage to a building or someone got hurt.

Insurance claim lawsuits

When an insurance company first receives a lawsuit, they will read the complaint and see if there is property damage being claimed.  However, the complaints are often very vague about the damages being sought and it may not be obvious.

Generally (but not always) the insurance company will contact the insured contractor and ask if the person suing is alleging “resultant property damage.”  The most common response of unsophisticated contractors is to deny the claim in the complaint and respond that they did not do any property damage.

Having looked at the complaint and seeing no property damage and after speaking the insured who claims they know of no property damage, the insurance company will often then issue a denial of coverage.

When an insurance claim is denied

However, all is not lost, there are five important things to remember when a claim is denied.

First, and most importantly, remember that just because the claim is initially denied does not mean that it is impossible to obtain coverage.  Just because the initial investigation of the insurance company did not find covered property damage does not preclude coverage.

Second, understand that insurance companies have a duty to act in the utmost good faith when handling your claims. They are required by law to carefully investigate claims.  This means both looking at the complaint and information from any other sources. An insurer cannot say “no” to a claim if an insured presents evidence (even at a later date) that the claim is covered.

Third, compile all information documenting the conditions of the construction site both while on the job and after you have left.  This means photos, inspection logs, emails, work orders, texts and anything else that explains the conditions of the work location.  Often within these documents there may be indications of damage such as reference to a broken window or a water stain.  These may be sufficient to show enough property damage to have the insurance company defend the lawsuit.

Fourth, compile all documents from the plaintiff.  Often property owners will list complaints in those documents regarding problems with the work being performed.  It is extremely important to remember that mere allegations of property damage by the person suing may be enough to trigger insurance coverage.  So, a property owner may complain in an email that a contractor damaged a fence while working on the job, however, the contractor knows that the damage already existed before they started the job.  Nevertheless, the fact the owner made the allegation creates a duty to defend the contractor.

Fifth, after a coverage denial, the complaint, the policy and coverage denial letter should be given to an attorney with experience with construction liability policies. If an insurer intends to deny coverage, it is obligated to explain why in the denial letter.

Why to get an attorney involved

As stated previously, construction insurance policies are complex and often over a hundred pages long.  They generally require an understanding of both construction and the underlying law to evaluate coverage.

Next provide the documentation of the site conditions and all documents from the plaintiff to the attorney.  At that point, the attorney should be able to fully evaluate whether the insurance carrier has properly denied coverage.

If coverage has been improperly denied, the attorney will write letters to the carrier providing the law and documentation proving a covered claim exists.  I would estimate that I have been able to obtain coverage after an initial denial in greater than 80% of the cases I have reviewed in this manner.  Therefore, a careful review of the facts and documents can yield tremendous results.

Please note that this article is only intended to provide some general educational information. For your particular legal questions, be sure and consult with an attorney.

Leah Schoen |  (805) 306-1100 ext. 125  | leah@thegreenlawgroup.com