I’ve seen conflicting court opinions on whether construction defects are covered. IRMI.com often covers this topic, too. Regardless of whether the policy covers it or not, some builders are using it AS a warranty. (I’ve seen some insurance industry documents that specifically say it is not to be used as a warranty, but when a court says it covers defects, the court is in effect saying it can be used as a warranty, it seems.)
The homebuilders should be concentrating on building the houses right in the first place. The defects are often entirely preventable and the resulting damage by shortcuts is entirely predictable. Omission of roofing felt, flashing, etc, improper grading/drainage, all can lead to water intrusion and mold.
Whether one believes mold harms your health or not, there’s no doubt that mold’s job is to eat/decompose the material it grows on. That means it rots the house, compromising its structural integrity and value.
Leaks and mold are serious defects that relate to construction shortcuts and mistakes. Builders can expect to keep doing battle with their insurance carriers until the building industry can build houses that keep the water out. I’m not talking about mismatched paint here, but significant defects that any sane person would want fixed or want compensation for. The problem will not go away until the builders address quality in a meaningful way.
Keep in mind that the unintended results of poor construction practices might qualify as an occurrence if there is an incident expoliting the construction defect (to quote the articles).
With no occurrence, the policy truly owes no defense or coverage.
By choosing the $4M Ohio verdict/award – Cosner v. Maronda Homes of Ohio Inc., No. 06 CV 008278 (Ohio Ct. Comm. Pls., Franklin Cty.)- as the foundation for a discussion regarding personal injury claims from mold induced illness in defective construction/CGL coverage, you have picked a poor example. CGL was not forced to “extend coverage for [mold exposure] injury arising from defective construction” because this case had no claims of personal injury from mold exposure. As I understand it, there were no physicians or toxicoilogical PhD experts that were even called to testify for the defense in the trial, only an engineer who testified of structural matters and an industrial hygienist who stated that excessive mold growth and its metabolites in a structure do have the potential to cause human illness.
It would be incorrect to promote that personal injury claims from mold in new construction are causing exorbitant costs for builders and insurers while citing this $4M case. It would not be correct to instill financial fear of mold injury liability in insurers and builders based on this incorrect information. What this could cause, however, is for industry to attempt to further influence public policy that will deny these illnesses even more than they already do, which will allow people to become sicker than they should from lack of early intervention/treatment, which WILL increase the financial damages in some construction defect cases.
None of the monies awarded in this case was for personal injury to the health of the family from mold exposure. So…this case has nothing to do with if bodily injury is excluded in the commercial general liability policy, as is stated in the title of your document. According to Harris Martin Publishing, “The jurors found that Maronda was in breach of the contract, engaged in unfair, deceptive or unconscionable acts or practices, misrepresented the house’s characteristics, failed to honor warranties, failed to perform in a workmanlike manner, and was guilty of malice, supporting an award of punitive damages.”
Pure and simple, this case was all about breach of contract, consumer sales practices act violations and the emotional distress this caused to the buyers.
The claim that a CGL policy is not a warranty or a bond is largely a myth perpetuated by pundits and courts with disregard to the contract language.
Other than some losses involving the impaired property exclusion, there is nothing in the ISO CGL policy that says it is not a bond or warranty. In fact, “your work” is defined to include warranties:
“Your work”:
a. Means:
(1) Work or operations performed by you or on your behalf; and
(2) Materials, parts or equipment furnished in connection with such work or operations.
b. Includes
(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”, and
(2) The providing of or failure to provide warnings or instructions.
All that matters is the coverage trigger (mainly BI or PD caused by an occurrence during the policy period) and the exclusions.
Actually, take a look at Texas Supreme Court decision Lamar Homes v. Mid-Continent Casualty where they found, among other things, that unintended construction defects may constitute an occurrence under the GL policy. Other states’ (see Florida) have also gone down a similar path in the past 18 months. The Texas Court also specifically rejected the carrier’s argument that finding coverage would transform the GL policy into a performance bond. I know this is one state, but we can’t say that poor work will never be an occurrence because in some cases it might.
You need to go back and read the first commentary posted last week (5/20). I clearly stated that I had no information on the insurance policies or anything else related to this specific case. I simply used this case as a launching pad for the discussion on defective construction and mold claims.
Also, I wasn’t using this to promote fear of anything – just to discuss CGL coverage as it relates to these “growing” issues (forgive the pun).
If you’ll look at both articles, you will notice that I said nothing about any money being paid or awarded beyond reporting that a judge handed down a judgment. I didn’t even talk about the specific suit at all – cause I didn’t know and it wasn’t relative to the point of the series.
The suit and the charges leveled in the case had nothing to do with the purpose of the article. The purpose was to discuss the potential for coverage, or the lack thereof for these types of claims.
Look at the first and second articles and wait for the third. Don’t jump to conclusions about motive – what happened at this house happens all over the country every day and insurance professionals need to be able to understand and discuss the coverage implications of these potential claims.
Each case is different, this one just presented a lot of interesting elements that lead to a good discussion of coverage and what qualifies for coverage and what doesn’t qualify under the CGL.
Just to make it clear – this series of articles has nothing to do with this specific case beyond using some of the elements of the defective construction techniques talked about.
Thank you for your detailed information, Breach of Contract suits lead to a whole different question we may talk about later. Now, tell me, how do you think CGL policies respond to Defective Construction and Mold claims in general, I’d like to know.
reading the comments section made me glad to be an insurance guy again – polite, spirited, collegial, informative, professional….a really welcome change from the standard political and social drivel ones sees constantly (re: recent Supreme Court decision earlier in this IJ) Bravo, Sharon & Chris
I DID read your first commentary posted last week (5/20) along with your newest one. And whether intentional or not, I am still of the opinion that you are attempting to discuss a $4M (not $3M in total) jury verdict in conjunction with the concept that this somehow has something to do with bodily injury claims and resultant coverage/liability from mold exposure. Again, the large jury verdict in your example case was not for bodily injury.
Some examples of why it would appear to me that you are (intentionally or not) scaring the builders and insurers that mold bodily injuries cost them much money: Title II “CGL Extends Coverage for Injury Arising from Defective Construction”. Quote from fist line in second series: “Property damage resulting from defective construction is unquestionably excluded in the commercial general liability policy; but what about bodily injury? And is injury or damage caused by the growth and proliferation of mold covered because it is not excluded by the unendorsed CGL?… Prompted by this verdict, the availability of insurance coverage to pay for injury or damage resulting from defective construction and/or mold was explored on this same Website. In last week’s first of three commentaries, the four commercial general liability coverage triggers were documented, and three were specifically applied to construction defect and mold claims…. The final coverage trigger question was left unanswered. Open for discussion and debate among readers this past week has been the question: was the injury or damage the result of a specific exclusion, excluded action or an excluded cause? Although three of the four requirements for coverage have been hypothetically satisfied, all four must be met before coverage exists. If the fourth trigger question is answered “yes,’ then no coverage is available for injury.”
Insurance policy lingo and coverage is not my area of expertise. Maybe I am not following what concept you are attempting to address with this discussion. Can you answer these questions for me to help me understand? I know that mold is excluded from many policies. But people and businesses do not get sued for mold. They get sued for not properly addressing a construction defect problem or properly handling the claim when the defect is found. Sometimes, the lack of timely and appropriate action is what causes mold – not the construction defect itself.
Where within your writing is the justification for the question of mold coverage for bodily injury from construction defect being treated differently than any other injury from construction defect? Why would coverage for bodily injury from mold be any different than coverage for falling down the steps from a defectively built stairway and then the builder refusing to repair the steps? Are you saying injuries from falling down the defective stairway should not be covered and the builder is not obligated to fix them?
You asked, “Now tell me, how do you think CGL policies respond to Defective Construction and Mold claims in general..” That’s a pretty broad (and loaded!) question. I could write you a dissertation on that one that would take you in and out of Washington DC. In and out of medical trade associations, courtrooms, think-tanks and teaching hospitals. That’s why I think if you are only trying to determine appropriate CGL coverage for bodily injury from construction defect and the builder’s & insurer’s responsibility to address the matter, you should use a more simplified injury other than mold when discussing the matter. Just my two cents.
BTW, if I was a reputable builder or insurer in Ohio, I would be watching a particular case and praying they don’t try to appeal it. Mold or no mold, when attempting to run from past misdeeds, shoddy builders and their unfortunate insurers can cause the establishment of case law that hurts us all.
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I’ve seen conflicting court opinions on whether construction defects are covered. IRMI.com often covers this topic, too. Regardless of whether the policy covers it or not, some builders are using it AS a warranty. (I’ve seen some insurance industry documents that specifically say it is not to be used as a warranty, but when a court says it covers defects, the court is in effect saying it can be used as a warranty, it seems.)
The homebuilders should be concentrating on building the houses right in the first place. The defects are often entirely preventable and the resulting damage by shortcuts is entirely predictable. Omission of roofing felt, flashing, etc, improper grading/drainage, all can lead to water intrusion and mold.
Whether one believes mold harms your health or not, there’s no doubt that mold’s job is to eat/decompose the material it grows on. That means it rots the house, compromising its structural integrity and value.
Leaks and mold are serious defects that relate to construction shortcuts and mistakes. Builders can expect to keep doing battle with their insurance carriers until the building industry can build houses that keep the water out. I’m not talking about mismatched paint here, but significant defects that any sane person would want fixed or want compensation for. The problem will not go away until the builders address quality in a meaningful way.
From what I remember of the referenced case, all it said was that the insurer had a duty to defend not that coverage existed.
Also, I think it said that the merits of coverage had to decided in the trial between the builder and the homeowner.
This case didn’t create coverage so to speak as the merits of individual cases will apply differently (which was concluded in this case).
If there was a follow up case, please let me know.
Quoting cases is tricky.
Keep in mind that the unintended results of poor construction practices might qualify as an occurrence if there is an incident expoliting the construction defect (to quote the articles).
With no occurrence, the policy truly owes no defense or coverage.
Dear Mr. Boggs,
By choosing the $4M Ohio verdict/award – Cosner v. Maronda Homes of Ohio Inc., No. 06 CV 008278 (Ohio Ct. Comm. Pls., Franklin Cty.)- as the foundation for a discussion regarding personal injury claims from mold induced illness in defective construction/CGL coverage, you have picked a poor example. CGL was not forced to “extend coverage for [mold exposure] injury arising from defective construction” because this case had no claims of personal injury from mold exposure. As I understand it, there were no physicians or toxicoilogical PhD experts that were even called to testify for the defense in the trial, only an engineer who testified of structural matters and an industrial hygienist who stated that excessive mold growth and its metabolites in a structure do have the potential to cause human illness.
It would be incorrect to promote that personal injury claims from mold in new construction are causing exorbitant costs for builders and insurers while citing this $4M case. It would not be correct to instill financial fear of mold injury liability in insurers and builders based on this incorrect information. What this could cause, however, is for industry to attempt to further influence public policy that will deny these illnesses even more than they already do, which will allow people to become sicker than they should from lack of early intervention/treatment, which WILL increase the financial damages in some construction defect cases.
None of the monies awarded in this case was for personal injury to the health of the family from mold exposure. So…this case has nothing to do with if bodily injury is excluded in the commercial general liability policy, as is stated in the title of your document. According to Harris Martin Publishing, “The jurors found that Maronda was in breach of the contract, engaged in unfair, deceptive or unconscionable acts or practices, misrepresented the house’s characteristics, failed to honor warranties, failed to perform in a workmanlike manner, and was guilty of malice, supporting an award of punitive damages.”
Pure and simple, this case was all about breach of contract, consumer sales practices act violations and the emotional distress this caused to the buyers.
The claim that a CGL policy is not a warranty or a bond is largely a myth perpetuated by pundits and courts with disregard to the contract language.
Other than some losses involving the impaired property exclusion, there is nothing in the ISO CGL policy that says it is not a bond or warranty. In fact, “your work” is defined to include warranties:
“Your work”:
a. Means:
(1) Work or operations performed by you or on your behalf; and
(2) Materials, parts or equipment furnished in connection with such work or operations.
b. Includes
(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”, and
(2) The providing of or failure to provide warnings or instructions.
All that matters is the coverage trigger (mainly BI or PD caused by an occurrence during the policy period) and the exclusions.
Yes, and “Your Work” is largely used in exclusions to the policy. Which is why there is no coverage for damage to “Your Work.”…
Don’t confuse a definition with a policy provision granting coverage.
Remember, the CGL is intended to cover an occurrence – warraties cover poor work. Poor work is NOT, never has been, and never will be an “occurrence.”
Actually, take a look at Texas Supreme Court decision Lamar Homes v. Mid-Continent Casualty where they found, among other things, that unintended construction defects may constitute an occurrence under the GL policy. Other states’ (see Florida) have also gone down a similar path in the past 18 months. The Texas Court also specifically rejected the carrier’s argument that finding coverage would transform the GL policy into a performance bond. I know this is one state, but we can’t say that poor work will never be an occurrence because in some cases it might.
Dear Mrs. Kramer,
You need to go back and read the first commentary posted last week (5/20). I clearly stated that I had no information on the insurance policies or anything else related to this specific case. I simply used this case as a launching pad for the discussion on defective construction and mold claims.
Also, I wasn’t using this to promote fear of anything – just to discuss CGL coverage as it relates to these “growing” issues (forgive the pun).
If you’ll look at both articles, you will notice that I said nothing about any money being paid or awarded beyond reporting that a judge handed down a judgment. I didn’t even talk about the specific suit at all – cause I didn’t know and it wasn’t relative to the point of the series.
The suit and the charges leveled in the case had nothing to do with the purpose of the article. The purpose was to discuss the potential for coverage, or the lack thereof for these types of claims.
Look at the first and second articles and wait for the third. Don’t jump to conclusions about motive – what happened at this house happens all over the country every day and insurance professionals need to be able to understand and discuss the coverage implications of these potential claims.
Each case is different, this one just presented a lot of interesting elements that lead to a good discussion of coverage and what qualifies for coverage and what doesn’t qualify under the CGL.
Just to make it clear – this series of articles has nothing to do with this specific case beyond using some of the elements of the defective construction techniques talked about.
Thank you for your detailed information, Breach of Contract suits lead to a whole different question we may talk about later. Now, tell me, how do you think CGL policies respond to Defective Construction and Mold claims in general, I’d like to know.
reading the comments section made me glad to be an insurance guy again – polite, spirited, collegial, informative, professional….a really welcome change from the standard political and social drivel ones sees constantly (re: recent Supreme Court decision earlier in this IJ) Bravo, Sharon & Chris
Dear Mr. Boggs,
I DID read your first commentary posted last week (5/20) along with your newest one. And whether intentional or not, I am still of the opinion that you are attempting to discuss a $4M (not $3M in total) jury verdict in conjunction with the concept that this somehow has something to do with bodily injury claims and resultant coverage/liability from mold exposure. Again, the large jury verdict in your example case was not for bodily injury.
Some examples of why it would appear to me that you are (intentionally or not) scaring the builders and insurers that mold bodily injuries cost them much money: Title II “CGL Extends Coverage for Injury Arising from Defective Construction”. Quote from fist line in second series: “Property damage resulting from defective construction is unquestionably excluded in the commercial general liability policy; but what about bodily injury? And is injury or damage caused by the growth and proliferation of mold covered because it is not excluded by the unendorsed CGL?… Prompted by this verdict, the availability of insurance coverage to pay for injury or damage resulting from defective construction and/or mold was explored on this same Website. In last week’s first of three commentaries, the four commercial general liability coverage triggers were documented, and three were specifically applied to construction defect and mold claims…. The final coverage trigger question was left unanswered. Open for discussion and debate among readers this past week has been the question: was the injury or damage the result of a specific exclusion, excluded action or an excluded cause? Although three of the four requirements for coverage have been hypothetically satisfied, all four must be met before coverage exists. If the fourth trigger question is answered “yes,’ then no coverage is available for injury.”
Insurance policy lingo and coverage is not my area of expertise. Maybe I am not following what concept you are attempting to address with this discussion. Can you answer these questions for me to help me understand? I know that mold is excluded from many policies. But people and businesses do not get sued for mold. They get sued for not properly addressing a construction defect problem or properly handling the claim when the defect is found. Sometimes, the lack of timely and appropriate action is what causes mold – not the construction defect itself.
Where within your writing is the justification for the question of mold coverage for bodily injury from construction defect being treated differently than any other injury from construction defect? Why would coverage for bodily injury from mold be any different than coverage for falling down the steps from a defectively built stairway and then the builder refusing to repair the steps? Are you saying injuries from falling down the defective stairway should not be covered and the builder is not obligated to fix them?
You asked, “Now tell me, how do you think CGL policies respond to Defective Construction and Mold claims in general..” That’s a pretty broad (and loaded!) question. I could write you a dissertation on that one that would take you in and out of Washington DC. In and out of medical trade associations, courtrooms, think-tanks and teaching hospitals. That’s why I think if you are only trying to determine appropriate CGL coverage for bodily injury from construction defect and the builder’s & insurer’s responsibility to address the matter, you should use a more simplified injury other than mold when discussing the matter. Just my two cents.
BTW, if I was a reputable builder or insurer in Ohio, I would be watching a particular case and praying they don’t try to appeal it. Mold or no mold, when attempting to run from past misdeeds, shoddy builders and their unfortunate insurers can cause the establishment of case law that hurts us all.