Court case over construction coverage a cautionary tale for insurers

Court case over construction coverage a cautionary tale for insurers | Insurance Business

Court case over construction coverage a cautionary tale for insurers
When Moorefield Construction built a Best Buy, it knew there was more moisture vapor emitting through the structure’s concrete than there should have been.

The general contractor expected no problems based on previous work and with a deadline looming for opening day, it told its flooring subcontractor to push ahead with installing floor tiles.

The carpet tiles “failed” and the Navigators Specialty Insurance Company filed a liability suit against Moorefield.

Navigators originally insured Moorefield, paying for its legal fees and paying part of the eventual settlement but then sued to recoup its losses.
The insurer argued Moorefield’s tile installation choices were deliberate, not accidental, and the initial court agreed.

Reimbursement for the settlement costs should be paid to Navigators from Moorefield, the court ruled.

But the saga didn’t end there.

In an appeals court, Navigators didn’t win out.

“(This) was not a case in which a contractor engaged in conduct only later discovered or revealed to constitute a construction defect,” the court ruled. “Navigators [the insurer] proved that Moorefield [the insured contractor] knew about and intended to perform defective work with the hope or mistaken belief the defect would not cause property damage.”

The turn of events is expected to change construction insurance, though the court attempted to limit the impact of its ruling.

“We emphasize that we need not and do not decide whether all construction defects are ‘occurrences’ under a standard CGL policy. We only decide whether, based on the record before us, Moorefield’s conduct . . . constituted an accident under California law,” the decision read. “We conclude Moorefield’s conduct was not an accident because it was a deliberate decision made with knowledge that the moisture vapor emission rate from the concrete slab exceeded specifications.” 

Insurers may use this case to deny construction coverage in the future.

Moorefield wasn’t required to pay the settlement fees back to Navigators and, following the court case, the insurer ended up incurring more expenses pursuing its legal option than if it had just settled the property damage issue in the first place.   

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