Builder’s risk insurance, also called course of construction insurance, can offer important protection for your construction project. As with any insurance policy, though, it will not cover everything or everyone. Even simple missteps, made after something goes wrong, can be enough to void coverage.
A decision from the 10th Circuit Court of Appeals highlights the importance of knowing the scope and limits of your insurance policy and considering how your actions, after a claim arises, can impact your policy’s coverage of that claim.
The case: Curtis Park Group, LLC v. Allied World Specialty Insurance Company
In Curtis Park, a real estate developer, Curtis Park Group, LLC, built a mixed-use residential and commercial project where four of the project’s five buildings were supported by a single concrete slab above below-grade parking. Defects in the construction of the concrete slab caused excessive deflection that would cost almost $3 million to repair. Curtis Park’s builder’s risk insurer, Allied World, denied coverage for the repair claim because it determined that the construction defect causing the deflection was not covered under Curtis Park’s policy.
Curtis Park then made a separate agreement with its general contractor: the contractor would perform the repair work at its own expense, and then both parties would share the expenses and recovery of pursuing a claim against Allied World.
The 10th Circuit ultimately ruled against Curtis Park. Without making any determination as to whether the defect that caused the concrete deflection would be covered under Curtis Park’s policy, the 10th Circuit held that Curtis Park had no right to recovery for damages it had not incurred. The court relied on three key facts:
- Curtis Park was the only named insured on the Allied World policy,
- the policy covered only reimbursement of expenses actually incurred by the insured, and
- the agreement between Curtis Park and the general contractor guaranteed that Curtis Park would not incur any of the repair costs.
In short, because the insurance policy covered only Curtis Park’s losses, and Curtis Park had, by separate agreement, ensured that it would suffer no losses, there was nothing for insurance to cover.
What this means for owners and contractors
This case highlights the potentially significant consequences of simple missteps:
- Purchasing an insurance policy is not, by itself, enough to protect your project. Think carefully about both the amount of coverage you need for your project and who that coverage needs to apply to.
- If an incident does occur, be cautious about settling any claims or entering into any agreements regarding liability or costs with individual parties until all claims can be resolved. Resolving disputes is a good thing, but always think about how each agreement could impact your other claims.
Samuel Frank is a Construction and Real Estate Litigation attorney known for his detail-driven approach to solving contract and project-related conflicts. Bernstein Shur’s Construction Law group delivers practical, full-spectrum guidance to owners, contractors, and design professionals navigating today’s construction challenges.