Builder Liability Insurance Problems: A Top Ten

Jared Gossett discovered NWC Alliance through a concerned retail and casualty insurance agent in Austin, Texas – Doug Lynch. After having some difficulties with his insurer, he asked Doug for informational resources that could help.

Jared was connected to Treacy Duerfeldt (founder of NWC Alliance), and many conversations ensued. Through these dialogues, Jared discovered that Treacy’s 30-years of experience and blunt, no nonsense approach, were both helpful and revealing.

Jared’s podcast then became a topic and the below top 10 were decided upon as valuable discussion points. 


Insurance in the eyes of most builders and their subcontractors is a necessary evil.  It’s no wonder; as many pay in year after year without ever having a general liability claim.  Worse yet, if a builder does have a claim, the results are frequently disappointing.  Let’s look at the Top Ten reasons for builder disappointment in liability coverage:

Not Working with the Right Agent

Commercial Insurance is not as black and white as life insurance. Many builders want to work with somebody they trust and may resort to an old friend or family member or even a homeowner customer who simply wanted reciprocation. Liability coverage can mean the difference between bankruptcy and a nice retirement for the builder. The complexity of understanding between the insurers, their underwriter and the contracts is formidable and not for any insurance generalist. How do you select the right agent?


The Policy is with the Wrong Insurer.

Insuring homebuilders is a very “niche” segment of the insurance market place. Large tract or multi family builders have fewer than four or five choices in many parts of the company. If the builder has a less than perfect loss profile, the choice may only be one or two insurers. With the constricted market, the builder will get “two out of three” in most all situations, and sometimes only one out of three. The three items are Price, Coverage, and Easy of Use/Acceptability. What does it really mean and what should a builder expect? Where can I find information about insurer reputation?


Not Understanding the Difference Between Admitted-Preferred and Non-Admitted Surplus Lines.

Builders are many times told that the admitted carrier is approved by the State’s Insurance Commissioner and therefore less likely to be a disappointment at time of premium audit or claim. While being regulated by the State should be a plus, for homebuilders in construction defect States, this is unlikely. Regulators first look at insurer solvency. Are they taking in enough money for claims they intend to cover? If they file low rates, how can they cover much and pass regulatory scrutiny? After the fact, the regulators can look at the insurer conduct. Did they do what the contract said? IF the cheap contract passes regular scrutiny for solvency, why would a regulator care if an insurer held true to the same exclusions that were approved to keep rates low? Why are Non-Admitted Surplus Line carrier and their brokers still somewhat regulated and how can they offer advantage for the Admitted – Preferred insurer?


Your Subcontract and Subcontractor Paperwork is Falling Short

In some States, builders go without liability insurance and will tender claims to the subcontractors involved in a problem. IS the builder getting full policy copies? Who is doing qualified analysis of these policies and has Errors and Omissions coverage in the event the analysis is wrong at the time of claim? Is the subcontract asking too much or too little? Even if a builder has their own insurance and collects Certificates of Insurance to avoid audit penalties, is the file “Claims Ready” and does the builder have a system to tender the claim before submitting it to their own insurer?


Is the Homebuilder Effectively Using Home Warranties.

Is the homebuilder effectively using home warranty as a tool to define their obligations and compel Federal arbitration, prevention litigation? How does their liability insurer recognize this and coordinate at the time of the claim?


The Builder has no Quality Assurance Documentation of either Project or Process

More complex or larger projects are litigation targets. To prevent destructive testing and support trade accountability, these builders document their inspections at key phases of construction and document correction of any anomalies. Have builders ever been upset for their insurer paying a claims that wasn’t their fault? How is that used to elevate premium later? what deductible or SIR did the builder have to pay?


The Wrong Definition of Claims Trigger.

Occurrence based policies can offer the broadest coverage if not significantly modified by endorsement. What if the policy offered is “Claim Made” or uses a “Manifest” definition, or excludes “Prior Work”? Where are these things found and how can a builder know?


The Deductible is per Claim Instead of per Occurrence

If a specific flawed installation process or manufacturer is the cause of distress for multiple home owners, how many deductibles does the builder want to pay? What kind of situation apply?


The Policy Places Severe Restrictions and/or Requirements on Subcontracted Work

For most builders, subcontracted work is 95% of the labor performed and can’t be excluded or limited at the time of the claim. What can be looked for and how is this fixed


The Policy has Various Other Key Exclusions.

The policy has various other key exclusions like earth movement/subsidence, action over, multi family/tract, Cyber/Smart Home – Data related and more. What are some of the claims scenarios that would apply?

Prior Exclusions
Other Exclusions

Jared’s podcasts currently reach nearly 4,000 builders. The podcasts are very technical, sell nothing, and are solely for the benefit of the builders and the industry. His podcasts can be located at:  https://buildingoptimal.com/