I have been asked this question quite a bit from owners, in particular: “The contractor committed defective work, but it has insurance. Doesn’t the insurance cover this defective work?” Ugh, NO! There is this misconception that liability insurance, specifically, is the be-all-and-end-all when it comes to defective work. This could not be further from the truth. Don’t get me wrong – liability insurance is important; it is very, very important. However, liability insurance does not cover the risk of an insured’s defective work. Rather, liability insurance is designed to cover the risk of resulting damage: damage resulting from defective work. This is a significant distinction and one that is often overlooked. This is also why anyone encountering defective work should be working with an attorney to maximize insurance coverage or realize that the issue is not covered by insurance.
Let’s give easy examples to summarize this application:
Example 1 – My windows are defectively installed. They all need to be removed and replaced. Insurance should cover this defective installation, right? Ugh, NO! Remember, insurance does not cover the risk of an insured’s defective work. Removing and replacing the windows would not be covered by insurance.
Example 2– My windows are defectively installed and this defective installation has resulted in water intrusion and extensive water damage. Insurance should cover the defective installation and water damage, right? Yes and No. As mentioned, insurance is still not going to cover the defective work. But, the insurance should cover the water damage resulting from the defective work.
Example 3 – A spalling piece of concrete that was defectively installed fell and substantially damaged a vehicle. Insurance should cover the damage to the vehicle, right? Insurance should cover this damage because the third-party damage was the result of the defective work.
Example 4 – The balcony waterproofing was defectively installed resulting in water getting into the balcony system. In order to fix this defective waterproofing, the balcony concrete topping needs to be ripped out. Insurance covers remediating the waterproofing, right? Yes and no, perhaps. Again, insurance is not going to cover the defective waterproofing. But, there may be an argument that insurance should cover the removing and replacing of the concrete topping since this work had to be ripped out in order to repair the underlying defective waterproofing.
These are just easy examples to illustrate the application of insurance in different contexts. Of course, these are not all of the contexts and most contexts are more challenging. But, the point is that insurance, contrary to what many may believe, is not designed to insure defective work. Insurance is more complex than it may seem and, again, it is important to consult with a practitioner that understands insurance, how to maximize insurance, and to to advise you when the issue in reality is not an insurance-coverage issue.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.