Construction Defect Litigation and Insurance Coverage

Once again, mediator Ron White provides clarity in the often murky world of construction defect litigation. This time, Mr. White is tackling insurance coverage as it applies to both repair costs and the costs associated with defending a claim.

Resolving construction defect claims often turns on the availability of insurance to pay for the repairs. However, disputes sometimes arise between builders and their insurance companies over the question of whether or not the insurance policy covers the construction defects being claimed. In other words, will the insurance company pay for the cost of repairs. In addition to the coverage dispute, the question of whether the insurance company will pay the attorney fees and other costs of defending the lawsuit can also come into play. Generally speaking, the insurers obligation to defend is greater than its obligation to cover the claim since a defense must be provided if there is a possibility for coverage whereas the payment of the cost of repairs is only required if the policy language actually covers the claims and there are no applicable exclusions in the policy. All of this means that if the insurer denies coverage or a defense, a builder can be engaged in 2 lawsuits at the same time when construction defect claims arise: (1) the construction defect lawsuit with the homeowners and (2) the insurance coverage lawsuit with the insurance company. A recent Arizona case shows how this can happen. (Click here to read the recent opinion in Lennar Corporation v. Transamerica Insurance Company.)