February 27, 2003

New laws needed to fight insurance crisis

Getting insured today means many exclusions for builders

By SHELLI LUCUS-KENNEDY
McDonald Insurance Group

Lucus-Kennedy

The contractor’s liability insurance problem is growing at an epidemic rate. This economic cancer affects everyone — homebuilders, homeowners and those concerned about growth management and affordable housing.

The trouble is that most people do not understand how the issue affects them. That’s why it’s important that our elected officials in Olympia pass legislation this session to fix the problem, before we have a statewide crisis.

Four years ago, more than 20 insurance carriers offered construction liability insurance. Currently, there are only a handful of carriers that still offer liability coverage of any type. Of this small list, only a few are regulated by the Washington State Insurance Commissioners Office. The others are surplus lines carriers that are not regulated. This is bad for both the homeowner and the homebuilder.

These unregulated companies don’t offer the same coverage as the traditional carriers. Though the surplus lines carriers are not doubling or even tripling rates like the remaining standard carriers, these new carriers only provide coverage with a variety of exclusions.

With this lack of insurance availability comes increased pressure for agents, brokers and carriers to perform with limited or inaccurate information. Obviously, this is not the best scenario. The agent offering coverage may or may not be educated on related issues. Therefore, clients are often unclear about their coverage or, worse yet, think they have coverage when they don’t.

It is not unusual for a builder to be offered a policy that has exclusions, such as:

Work performed by a subcontractor.
Construction defects or residential work without a definition.
Work that may be covered by warranty.
Specific materials such as EFIS, LP siding and asbestos.
Any work where a homeowners’ association is present. This extends further than condominiums, to single-family and planned communities where a homeowners’ association is used for common amenities or playgrounds.
Types of residential structures, i.e., single-family, duplex, town homes, apartments, condos. This may be limited to new construction only, but often times it includes repair and remodeling.
Professional advice provided by the builder as part of his or her contract.
Any past or pending work or litigation, including any work “in process” when the new policy started.
Mold/micro-organisms. Mold is inherent to our environment and virtually unavoidable with the air-tight construction required by the EPA. Mold is a maintenance issue, and insurance was never intended to cover it.

The expectation of the homeowner is that remedy for poor construction and damage is covered by the builder. Unfortunately, builders cannot buy protection in this market and, quite possibly, many have bought a policy that outright excludes anything that might happen, and ultimately claims will not cover.

It doesn’t matter if the builder has never had a claim or builds the best product around; they are all grouped together with respect to availability.

Consumers and builders alike often ask, “Who suffers the most?” and “What can I do?” We are currently in a legislative session in which various organizations are addressing such issues. The solutions offered range from tort reform to an assigned risk pool with a joint underwriting agreement.

One bill appears to have the most promise. “The Condo Bill” (SB 5536) is supported by businesses, as well as housing and growth management advocates. It would clarify what is covered in a warranty for all parties involved. And, though warrantees don’t guarantee insurance coverage, clarity helps everyone.

The bill would also use arbitration as the means to resolve property damage disputes. This makes sense because it saves everyone involved the expensive costs of litigation.

Whether at the consumer, homeowner, business owner, insurance professional or contractor level, your opinion matters. Most of all, our representatives in Olympia need to fully understand and accept that there is a crisis, and this issue should be a top priority. Write, e-mail or call your state legislators in support of SB 5536. You can find your legislators online at http://www.leg.wa.gov.

The insurance crisis affects all of us, whether directly or indirectly. The only solution is to amend our existing laws. If you have questions or would like more specific information, call Scott Hildebrand of the Condominium Alliance at (425) 451-7920.

Shelli Lucus-Kennedy is a commercial insurance broker with McDonald Insurance Group and a member of the Master Builders Association of King and Snohomish Counties. She works exclusively with MBA members and has nearly 20 years of insurance and risk management experience.

Other Stories: