If a Defect Occurs During Construction, Is It an "Occurrence?"

Construction site

Given that CGL policies offer nationwide coverage and typically lack a choice of law provision, they may invoke difficult choice-of-law issues, as well.

February 12, 2024
Brendan J. Witry - The Dispute Resolver

Establishing insurance coverage for construction defects is almost as important as establishing liability in the underlying construction defect litigation itself.

The risk to the defendant contractor of defending a construction claim can place significant burdens on a contractor’s operations and an uninsured judgment might even put the contractor out of business.

For owners, suing a contractor for construction defects can become academic if there is no prospect of insurance coverage; obtaining a $1 million judgment against a contractor with limited assets would be a pyrrhic victory.

Commercial General Liability (CGL) carriers are obligated to defend claims that potentially fall within the coverage granted by the policy.[1] When presented with a claim, CGL insurers typically have three options: (1) assume the defense without reservation; (2) assume the defense asserting defenses to coverage, and depending on the state, reserving the right to recover defense costs if it later determines there is no duty to defend; or (3) deny the claim outright and seek a declaratory judgment holding that the insurer has no duty to defend or indemnify. An insurer may deny the claim outright and not seek a declaratory judgment, but does so at its peril because it can expose the insurer to significant liability if the insured later shows the insurer in fact had a duty to defend.

Mr. Witry may be contacted at bwitry@lauriebrennan.com


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