Construction Defect Coverage

During the course of any large construction project, damage may occur that is alleged to be result of either improper installation by a contractor or subcontractor, or the result of a product that was defective when installed.  For the facility owner affected by the damage, or for the contractor against whom a defect claim has been made, the availability of insurance coverage is an important practical consideration that may help determine whether the injured party will be made whole, and on what terms the dispute may be resolved.  Insurance coverage is often sought either directly on a first-party basis under a property or all-risk type policy, or by the defendant contractor or product supplier pursuant to a third-party Commercial General Liability (“CGL”) policy.  The construction boom of the past five years has given rise to an enormous amount of this type of litigation against developers, contractors, sub-contractors and suppliers.  The number of suits, the cost of defending those suits, and the amount at issue in those suits has skyrocketed.  Insurers have responded to this trend.  Insurers are increasingly reluctant to defend and indemnify policyholders who are defendants in construction litigation – citing a variety of rationales, related to policy definitions of “occurrence” and  alleged “business risk” policy exclusions - and construction defect coverage litigation has increased dramatically across the country.  In response, insurers have changed policy language, added new endorsements -- and created confusion over the scope of available insurance coverage. 

Reed Smith’s Insurance Recovery Team understands construction—not only the nuts and bolts of how things are built, but also the contracts and relationships involved, and the role of insurance.  We understand as well the challenges facing policyholders in the current legal climate.  We are a full-service law firm, dedicated to working with our clients through all phases of the insurance process, from securing the best policy terms, to the submission and favorable resolution of claims.

Reed Smith Insurance Recovery attorneys work with clients and their brokers to review and analyze general liability insurance programs and specialty programs designed for the construction industry to assess coverage potentially available for the risks most likely to affect those policyholders.  Our clients are varied, and include facility owners, developers, general contractors, sub-contractors, suppliers and manufacturers.  During the policy renewal process, our attorneys review potential coverages to determine which policy best meets the needs of each insured.  At the client’s option, we also participate in negotiations with insurers, either directly or through the client’s broker, to obtain the most comprehensive coverage available.

In the event of a claim, Reed Smith’s Insurance Recovery Team assists the client in analyzing all potentially available coverage and in giving notice to the applicable carriers.  We then aggressively negotiate to secure defense by appropriate counsel and the maximum coverage available for the claim.  Negotiation (i.e., the use of alternative dispute mechanisms such as mediation) can often resolve insurance issues, including the retraction of outright coverage denials by the carrier, without the need to incur the cost of full-blown litigation in court.  If litigation is necessary, our attorneys are experienced and effective advocates in state and federal court, and have been successful in obtaining favorable results for clients.

Our Experience Includes:

  • We assisted the manufacturer of structural building components in avoiding excess liability exposure in a $66 million product liability action where the excess carrier refused to engage in reasonable settlement negotiations.
  • We worked with a contractor to have underlying construction defect litigation settled when one carrier had reserved rights and was reluctant to contribute to settlement and a second carrier had denied coverage in total.  Ultimately, both carriers contributed substantially to resolving the underlying litigation.
  • We assisted a developer in resolving a multi-million dollar coverage dispute with its CGL insurer over underlying EIFS litigation, including settlement of the underlying litigation.
  • We represented the owner of a waste coal power generation facility in obtaining payment of first party coverage benefits for property damage and business interruption that resulted from a generator cooling fan blade failure.  We then negotiated an arrangement with the carriers to jointly pursue their subrogated losses as well the owner’s uncovered claims against the original equipment manufacturer, which litigation resulted in the settlement of all claims.
  • We successfully represented the manufacturer of steel panels that were part of a building’s “curtain wall” in an action against its insurer for costs of defense and indemnification of the multi-million dollar amount that the manufacturer contributed to the settlement of the underlying litigation, which had been brought by the building’s owner.
  • We provided advice to a major East Coast developer regarding coverage matters involving property damages caused by subsidence beneath a “big box” home retail store related to the alleged defective construction and/or design of support piers installed at a retail site sitting atop a rehabilitated landfill.

For more information on Construction Defect Insurance Recovery, contact:  Practice Group Leader David Halbreich at +1 213 457 8033, at +1 215 851 8126, or  at +1 412 288 3280.