You have just learned that someone has been injured on your construction site or that a client is suing you for defective work. What you do next and when you do it is critically important to your business. Here are three things you should know.
1. Notify your insurance carrier immediately.
As soon as you become aware of a potential construction insurance claim, gather the facts and notify your broker or claim department, even if you know little at the time. Together, bring the claim to your insurance carrier. Many policies, especially “claims-made” policies, require immediate notification to keep your insurance coverage intact.
Your broker or claim department should work with and advocate for you, especially if a construction defect claim is being made. Carriers can be quick to deny these types of claims. Do not automatically accept “no” as a final verdict. Retain experienced legal counsel and argue your case.
Construction Risk and Insurance Roundtable Podcast
Sometimes construction companies delay notifying their carriers because they fear that their insurance premium will be increased. This generally is not the case. Businesses also sometimes delay notifying their carriers because they believe the claim may go away. The problem arises when the claim doesn’t go away and the carrier hasn’t been notified. It is better to be proactive and provide notice sooner rather than later.
2. Identify and alert all potential carriers involved.
Your current insurance carrier may not be the only insurer you need to notify. Consider that damages can span multiple years and policies. For example, water damage may be discovered this year, but you may learn that the root cause of the issue began four years ago. Give notice to all carriers who insured your business during that time span and whose policies may be activated.
If you are a contractor, you also may need to look beyond your own insurer. Carriers for your subcontractors may need to be notified depending on the issue, either by you or by your subs.
3. Respond to reserve your rights.
After you have provided timely notice to all the right parties, your insurance carrier can do one of three things. First, it can immediately agree to cover the claim (which isn’t likely to happen). Second, it can deny the claim (never take “no” for an answer without arguing your case). Or third, it can agree to defend you in a legal action but reserve its right to deny a claim based on certain grounds. This is known as a “reservation of rights” letter.
If the insurer sends you a reservation of rights letter, engage coverage counsel and review the document. This type of notification sometimes includes language to the effect that the carrier will defend you in the legal action, but later, if coverage is denied, it will require you to reimburse the carrier for your defense.
To preserve your rights, you must respond. You and your counsel may want to reply with something such as, “I don’t agree with the way you have described our coverage. I’m reserving all of my rights under the policy and under the law.” Don’t wave your ability to argue later.
To learn more about managing and insuring construction risks, listen to the “Construction Risk and Insurance Roundtable” podcast episodes.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.