If you found out your contractor’s insurance company denied your construction defect claim, you are probably confused and frustrated. You did nothing wrong. Your home has real damage. So why won’t the insurance company pay?
The answer usually comes down to what is covered and what is not covered. In Charleston and across the construction industry, contractors typically carry a type of policy called a Commercial General Liability (CGL) policy. These policies do not cover everything. They only cover certain kinds of damage, and insurance companies often deny claims that fall outside those narrow rules.
When a homeowner learns that their claim is not “covered”, frustration is a very common reaction. If you find yourself thinking “What’s the point of insurance?”, you are not alone in that. But insurance does not protect a contractor against claims to repair his own defective work – rather, it covers the consequences of defective work, commonly referred to as “consequential damage”. In the well known Auto Owners versus Newman decision, the South Carolina Supreme Court explained this concept as follows: “a claim solely for economic losses resulting from faulty workmanship is part of an insured’s contractual liability which a CGL policy is not intended to cover.”
This guide breaks down why your claim may have been denied, what “covered” damage really means, and how a Charleston construction defect attorney can help you fight back.
Why do “Covered Damages” Matter? Liability vs. Collectability.
Even if a contractor is legally responsible, or “liable,” for your damage, that does not automatically mean you can collect money from them or their insurance company.
Liability asks: Did the contractor do something wrong that caused your damage?
Collectability asks: Is there insurance coverage or enough assets to actually pay for that damage?
A contractor can be 100% liable for your damages and still leave you with nothing if there is no insurance coverage and no money to collect from. This is why reviewing the insurance policy early is so important. An experienced attorney will look at both questions from day one, not just whether the contractor did something wrong.
Covered Damages vs. Uncovered Damages
Not all damage from bad construction work is treated the same way by insurance companies.
“Uncovered” damage usually means the cost to fix the contractor’s own bad work. For example, if a contractor flashes a window incorrectly and the window itself needs to be replaced, that repair cost is often seen as a business expense, not an insurance claim. Insurance companies argue this is simply the cost of doing the job over again.
In fact, most standard CGL policies contain what is known as a “your work” exclusion, that specifically excludes any coverage for the cost of repairing the contractor’s own work, as opposed to other portions of the home.
So, if your work as the contractor is not covered, what is? “Covered” damage usually refers to damage resulting from bad work – usually water damage. Using the same window flashing example, if a leaking window causes wood rot, or damage to trim, floor coverings, or other finishes, that is a covered or “consequential” damage, because it is a consequence of the defective work, not the defective work itself.
This difference is one of the biggest reasons construction defect claims in Charleston get denied, or severely underpaid by insurance carriers. Homeowners assume the whole repair should be covered because it is not their fault, but in almost all cases, at least some portion of a construction defect claim will be uncovered. Experienced construction lawyers who know insurance law and how CGL policies work can help homeowners challenge insurance companies’ coverage determinations and valuation of their claim. An insurance company’s initial coverage review typically does not recognize the full extent of covered damages, and also undervalues those damages that it does recognize as covered.
Why CGL Policies Only Pay for Consequential Damages
CGL policies are built around the idea of paying for accidental damage to other property, not paying to fix a contractor’s mistake. This means:
– The cost to redo bad framing, bad plumbing, or bad workmanship is usually not covered.
– The cost to repair water intrusion, termite damage, or structural damage caused by that bad work may be covered.
In a climate like Charleston’s, repeated exposure to wind driven rain and other coastal weather events can turn a small construction mistake into major water damage. While water damage is a covered damage, it is important to ensure that the full extent of damage is considered by the insurance carrier before you release your claim. Remember, most water damage stays “hidden” behind finished and exterior cladding, and therefore can remain undiscovered for years. Without a proper investigation by a forensic engineer, it is easy to underestimate the full extent of damage from even a single leaking window.
Duty to Defend vs. Duty to Indemnify
Insurers owe their insured’s two main duties: The duty to defend, and the duty to indemnify. Importantly, an insurer may owe a duty to defend, even if there is no duty to indemnify.
The duty to defend means the insurance company must provide the contractor with a lawyer and pay for that legal defense if there is a possibility the claim is covered. The duty to indemnify means the insurance company must actually pay for the damages once liability is proven.
This is important because even though an insurance carrier will act like their coverage determination is gospel, the question of covered versus uncovered damages is one of contract interpretation. Determining coverage is a heavily fact specific inquiry, and it may require years of litigation to fully determine an insurer’s obligation to indemnify its insured. The duty to defend is much simpler – as explained in South Carolina’s City of Hartsville decision, if there is even a “possibility of coverage under an insurance policy, the insurer is obligated to defend.” This means an insurance company may have to defend a contractor in a lawsuit even if it believes it may never have a duty to indemnify the contractor for a judgement. Getting a carrier to acknowledge their duty to defend is the first step in challenging an unfair coverage determination.
Get Help From an Attorney Who Understands Contractor Coverage
Construction defect insurance claims are complicated. Properly evaluating a carrier’s obligations, and effectively communicating with the carriers can “rescue” an otherwise doomed construction defect claim.
If your contractor’s insurance company denied your claim, do not assume that is the final word. An attorney who understands contractor insurance coverage can review the denial, identify covered consequential damages, and help you pursue your claim against the contractor directly.
If you are dealing with a construction defect or water intrusion claim in the Charleston area, contact Fuller Law, LLC today for a free consultation to discuss your options.
