Condo Project Had $5M in Construction Defect Claims: Home Builder’s Insurance Defended Us
The Leaks That Sank Our Profits
My company built a 50-unit condo building. Three years after we sold the last unit, we were hit with a massive construction defect lawsuit from the homeowners association. They alleged that faulty window installations had led to widespread water intrusion and mold, with a repair bill of over $5 million. It was a potential company-killer. Our “Completed Operations” liability policy was our only hope. It paid for the army of lawyers and experts needed for the complex, multi-year legal battle and ultimately funded the large settlement, saving our business from drowning in litigation.
Building Homes, Building Protection: Insurance Guide for Home Builders
The Blueprint for Your Business’s Survival
As a home builder, you have a blueprint for every house you construct. It shows the foundation, the framing, the systems—everything needed for a strong, safe home. Your insurance program is the blueprint for your business’s survival. It maps out your protection: a solid foundation of General Liability, a strong framework of Workers’ Comp, and a protective roof of Builder’s Risk coverage. Without a detailed, well-designed insurance blueprint, your business is just as vulnerable to collapse as a house built without a plan.
Home Builder Insurance Needs: CGL (Emphasis on Completed Ops!), Workers Comp, Builder’s Risk
The Holy Trinity of Home Building Insurance
A young builder asked me what insurance he absolutely had to have. I told him about the “holy trinity.” First, and most importantly, is Commercial General Liability (CGL) with robust “Completed Operations” coverage, because your biggest risks show up years after you’re done. Second is Workers’ Comp to protect your crew from falls and injuries. Third is Builder’s Risk, which is the property insurance that protects the house itself from fire, theft, or storms while it’s being built. Miss any one of these, and your entire operation is at risk.
The Long Tail of Construction Defect Liability: Claims Years After Completion!
The Lawsuit from a Job I Did 8 Years Ago
I received a lawsuit in the mail related to a house I built eight years ago. I barely remembered the project. The homeowner was claiming that slow, progressive foundation cracking was due to my company’s faulty soil compaction. This is the nightmare of the “long tail.” In many states, you can be sued for construction defects up to ten years after you finish a home. It’s why your “Completed Operations” coverage is the most vital part of your policy. It’s a shield that has to protect you for a decade.
Common Construction Defect Claims: Water Intrusion, Foundation Issues, Mold
The Unholy Trinity of Construction Defects
As a home builder, there’s an “unholy trinity” of claims that keeps you up at night. The first is water intrusion, usually from faulty window, door, or roof installation. Water is the enemy; it gets in everywhere. The second is foundation issues—cracks, settling, and shifting that can compromise the entire structure. The third, and scariest, is mold, which is a direct result of the first two. A major mold claim can be a multi-million-dollar disaster. Your insurance is your only defense against this toxic trio.
Workers’ Comp for Your Direct Employees AND Managing Sub Insurance! Critical!
His Injury, My Problem
I hired a framing subcontractor for a new build. I trusted him and didn’t bother to get his certificate of insurance. One of his guys fell from the second story and was seriously injured. It turned out my sub had let his workers’ comp policy lapse. Because the injury happened on my site, the law considered the injured worker my responsibility. The claim went on my policy, and my premium more than doubled for the next three years. It was a $50,000 lesson: always, always get the certs.
Builder’s Risk Insurance to Cover Homes Under Construction from Damage/Theft
The Arsonist Who Burned My Profit
We were three months into building a large custom home. The framing was done, and the windows were in. It was looking beautiful. Then, an arsonist lit it on fire overnight. The house was a total loss, over $250,000 worth of lumber and labor, gone. My liability policy wouldn’t cover it. What saved me was our Builder’s Risk policy. This is the property insurance for a house under construction. It paid to rebuild the entire structure, turning a complete disaster into a manageable setback.
Comparing Home Builder Insurance Policies: Tract Homes vs. Custom Builds
The Cookie-Cutter and the Custom Job
A tract home builder who builds the same three models over and over has a different risk profile than a high-end custom home builder. The tract builder’s risks are repetitive, making them somewhat predictable for an insurer. The custom builder, on the other hand, is always building a unique prototype. They use new materials, complex designs, and face higher homeowner expectations. This higher degree of unique, unproven work means the custom builder often pays a significantly higher insurance premium for the same amount of revenue.
Does Your CGL Policy Cover Faulty Workmanship by Your Subs? (Indemnification & Insurance Requirements Help!)
The Plumber’s Leak, The Builder’s Lawsuit
The plumbing subcontractor on our new home build installed a faulty shower valve. A year later, it caused a slow leak that ruined a bathroom and the kitchen below. The homeowner didn’t sue the plumber; they sued us, the builder. Our CGL policy defended us. But because our subcontract agreement required the plumber to “indemnify” us and name us as an “additional insured” on his policy, our insurer was able to tender the claim to his insurance company. They paid the damages, not us.
Filing Complex Construction Defect Claims Involving Multiple Trades
The Mystery of the Leaky Window
A homeowner sued us over a leaky window. Was it our fault? Or was it the framer who framed the opening wrong? The window manufacturer who made a bad product? The siding guy whose house wrap was installed improperly? Or the plumber whose pipe was sweating in the wall? A single leak can trigger a massive, complex lawsuit involving a half-dozen subcontractors. As the builder, you’re the main target. Your insurance company’s job is to quarterback the defense and sort out the finger-pointing between all the trades.
My New Home Has Leaks Everywhere: Going After the Builder (and Their Insurance!)
The Dream Home That Became a Nightmare
My husband and I bought a beautiful new home. Within the first year, three different windows started leaking, staining the drywall and warping the floors. We called the builder, who was unresponsive. We had no choice but to hire a lawyer and file a construction defect lawsuit. Our lawyer wasn’t just going after the builder’s assets; he was going after their “Completed Operations” liability insurance policy. That insurance policy is the financial backstop that ensures homeowners have recourse when a builder’s work fails.
Understanding “Your Work” Exclusions in CGL Policies for Builders
The Thing They Won’t Pay to Fix
A stucco subcontractor’s faulty work on one of our houses had to be redone, a cost of $15,000. I tried to file a claim on my liability policy. The insurer denied the portion of the claim for the stucco itself, citing the “your work” exclusion. They explained that a CGL policy isn’t a warranty for a sub’s bad work. However, the faulty stucco had caused water damage to the framing underneath. The policy did pay for the “resulting damage” to the framing. It’s a critical and often confusing distinction.
Protecting Your Business from Costly Defect Litigation & Remediation
The Best Insurance is Quality Control
After facing a tough construction defect lawsuit, my company completely changed its approach. We now invest heavily in a dedicated quality control manager. He inspects every stage of our subs’ work, from the foundation pour to the final paint. He takes thousands of photos. This proactive approach has dramatically reduced our number of warranty calls. Our insurance agent loves it, too. At our last renewal, we got a premium credit because our documented quality control program proves we are a lower-risk builder.
Wrap-Up Insurance (OCIP/CCIP) for Larger Home Building Projects?
One Policy to Rule Them All
On a large, 100-home subdivision project, we didn’t have each of our 30 subcontractors provide their own insurance. It would have been a nightmare to track. Instead, we, the builder, purchased a “Controlled Insurance Program” (often called a wrap-up or CCIP). This one, massive insurance policy covered us and all the subcontractors for both liability and workers’ comp on that specific project. It ensured everyone had the same high level of coverage and simplified the claims process immensely.
Warranty Programs vs. Insurance Coverage for Defects
The Warranty is the First Line of Defense
A homeowner called with a minor issue: a door we installed was sticking. This falls under our one-year builder’s warranty. We sent our warranty manager out to fix it at our own expense. It’s a business cost. Insurance is different. Insurance is for when a defect causes property damage or bodily injury, like a faulty deck collapsing. Your warranty covers the small stuff and satisfaction issues. Your insurance is there to protect you from the catastrophic failures.
Insuring Model Homes and Sales Offices
The “Finished Home” in the Middle of a Construction Site
We have a beautiful, fully furnished model home at the entrance to our new subdivision. My agent explained that it needs a unique insurance policy. It’s not a standard homeowner’s policy because it’s a place of business. And it’s not just a commercial property policy because it’s a furnished home. We have a special policy that combines commercial property coverage for the structure, contents coverage for the furniture, and general liability for when potential buyers visit and tour the home.
Protecting Against Job Site Theft and Vandalism (Builder’s Risk)
The Stolen Appliances
We were just a week away from closing on a new home. We had just installed the entire $15,000 appliance package—fridge, stove, dishwasher. That weekend, thieves broke in and stole every single one. Our general liability policy wouldn’t cover it. What saved us was our Builder’s Risk policy. This is the property insurance that covers the house and the materials during construction. It paid to replace all the stolen appliances so we could still close on time.
Home Builder Insurance: Constructing a Secure Financial Foundation
The Foundation You Don’t Pour
As a home builder, you know the most important part of a house is the foundation. It supports everything. The most important part of your business is its financial foundation, and that is your insurance program. It’s the solid, dependable base that supports your company through the immense risks of construction defect lawsuits, worker injuries, and job site disasters. With a strong insurance foundation, you can confidently build your business, knowing it’s designed to withstand the test of time.
Subsidence Exclusions: Major Concern for Home Builders!
The Sinking Feeling of an Uninsured Claim
We built a home on a hillside lot. Two years later, the homeowner sued us, claiming the house was cracking because the hillside was slowly sliding. This is a “subsidence” or “earth movement” claim. I was horrified to learn that nearly every General Liability policy has a strict exclusion for this. The policy will not cover damage from sinking or shifting earth. It was a terrifying lesson that even if my work is perfect, if the ground under it moves, I could be facing an uninsured, company-ending lawsuit.
Deductibles or Self-Insured Retentions for Construction Defect Claims
The First $25,000 is On Us
When we got hit with a large construction defect lawsuit, our insurance company’s lawyers took over. But the first thing they told us was that our policy had a $25,000 “self-insured retention” (SIR) for completed operations claims. This meant we had to pay the first $25,000 of legal bills and costs out of our own pocket before the insurance policy would start paying. For builders, these large deductibles or SIRs are common, and you have to have the cash on hand to cover them.
Liability for Job Site Injuries to Buyers or Visitors
The “Quick Look” That Became a Lawsuit
A client insisted on doing a walk-through of their home while it was still being framed. Despite our warnings, he wasn’t looking where he was going and stepped on a nail, injuring his foot. He sued us for his medical bills. Our General Liability policy defended us, but it was a good reminder that a job site is a dangerous place. We are responsible for the safety of anyone we allow on the property, which is why we now have a strict “no visitors without a supervisor” rule.
What if Building Materials Fail Prematurely? (Manufacturer vs. Builder Liability)
The Warping Siding
We installed a new type of composite siding on a dozen homes. A year later, the siding on all twelve houses started warping and discoloring in the sun. It was a massive failure. The homeowners sued us. We, in turn, sued the siding manufacturer. The resulting legal battle was a complex, multi-party war over who was at fault: our installation or their defective product? Our liability insurer defended us, but it was a lesson in the risk you take when you use new or unproven building materials.
Finding Insurers Experienced in Covering Residential Construction Risks
The Agent Who Knew What “SB 800” Meant
My first insurance agent was a nice guy, but he didn’t understand home building. I switched to a specialist broker. In our first meeting, he asked me about my company’s “SB 800 process” (a specific California construction defect law). I was stunned. He knew my industry and its specific legal risks. He had access to the few insurance companies that are experts in covering residential builders. Finding an agent who speaks your language is the most important step in getting the right protection.
Home Builder Insurance: Don’t Build Without a Strong Safety Net!
The Net Below the High-Wire Act
Being a home builder is like being a high-wire performer. You’re juggling immense financial risks, managing dozens of subcontractors, and balancing the expectations of demanding clients. A single misstep—a major defect, a catastrophic injury—can lead to a fatal fall for your business. Your insurance program is the massive safety net stretched out below you. It’s what gives you the confidence to walk the high wire every day, knowing that if you fall, the net is there to catch you.