Insurance Can Frequently Fix Faulty Work!
DEAR TIM: My house is 3 years old. Recently we discovered a leaking roof, broken shower pan and numerous other defects that were caused by poor workmanship. The roof leak caused a sheet of drywall to fall without warning from the ceiling. It ruined an expensive Oriental carpet and broke my husband's nose. The shower leak caused all sorts of wood rot. The contractor's warranty was for just one year. He says he is not responsible for the damage. Should we hire an attorney and file suit against the builder? How could we have avoided this mess? Pam V., Leland, MI
DEAR PAM: First, I hope your husband is feeling better. The personal injury could have been worse. He might have sustained a serious eye injury. I'm confident that we will get the damage to your house repaired and your rug replaced. As for hiring an attorney, don't pick up the telephone just yet. You just might need one, but hopefully for just a couple of hours.
You must see actual proof that your contractor has insurance and more importantly, what the insurance covers.
Homeowners often are quick to the draw in these situations. The first instinct is to get involved in an expensive legal battle where often the only winners are the attorneys. You may end up in court over this situation, however, I would not turn down that road just yet. The costs of a full blown legal battle that takes months or years often can exceed the entire cost of the claim against the builder. Remember, you are never guaranteed that you can recover any money from the builder much less your attorney's fees. Alternative dispute resolution such as mediation and arbitration can also yield unsatisfactory results.
Believe it or not there is often a safety net available that contractors and homeowners fail to deploy in situations like yours. This safety net is the Contractor General Liability (CGL) insurance policy. If your contractor had a high quality, comprehensive occurrence form CGL policy in force at the time he constructed your house and has continued to keep the policy current up to the time you make your claim, all of your losses may be covered by the insurance company - even though the builder's warranty has expired! These policies are often available with enhancements that extend coverage should a builder retire or go out of business unexpectedly.
CGL policies are fantastic insurance products. They offer the contractor lots of coverage for his business and almost always personal property and bodily injury damages caused by contractor errors. The coverage limits per occurrence can be substantial. It is not uncommon for a CGL policy to cover damages up to $1,000,000. Damage limits depend upon how much insurance the contractor purchases and the type of work he performs. The cost for a high quality CGL policy is often less than $2 per day! They are available for all types of contractors and sub-contractors.
The cost to repair the actual workmanship errors that caused the damage is rarely covered by the CGL policy. This cost is the responsibility of the contractor. If you or the contractor purchased an extended warranty, you should investigate filing a claim under this coverage for the errors caused by the workmen. However, don't count on this money. Often extended warranties provide very specific protection. If you are considering the purchase of an extended warranty, be sure to read the fine print concerning events that trigger coverage.
If you discover that the contractor did not have a CGL policy, you could have avoided your current dilemma with a simple piece of paper and a phone call. An insurance company will readily supply the contractor with a dated Certificate of Insurance. This piece of paper will often include the CGL policy number, its effective date, coverage limitations, enhancements, and the name and address of the insurance company and agent. Obtain a copy of this certificate from your contractor and confirm that the policy is in place and paid for by calling his agent. If you suspect the contractor might not be around in the future, make sure he has "Discontinued Operations" coverage as well. All contractors and subcontractors who work for you must have this coverage. Don't let them start work until you have a Certificate of Insurance from each contractor in hand. Keep the certificates in your safe deposit box.
If your contractor does have this coverage and you file a claim, you might need the advice of a seasoned, experienced attorney. The insurance company will often require you to sign away future claim rights when they issue payments. Your attorney will make sure that you only give away those rights that are fair and equitable.