Establishing insurance coverage for construction defects is almost as important as establishing liability in the underlying construction defect litigation itself.

The risk to the defendant contractor of defending a construction claim can place significant burdens on a contractor’s operations and an uninsured judgment might even put the contractor out of business.

For owners, suing a contractor for construction defects can become academic if there is no prospect of insurance coverage; obtaining a $1 million judgment against a contractor with limited assets would be a pyrrhic victory.

Commercial General Liability (CGL) carriers are obligated to defend claims that potentially fall within the coverage granted by the policy.[1] When presented with a claim, CGL insurers typically have three options: (1) assume the defense without reservation; (2) assume the defense asserting defenses to coverage, and depending on the state, reserving the right to recover defense costs if it later determines there is no duty to defend; or (3) deny the claim outright and seek a declaratory judgment holding that the insurer has no duty to defend or indemnify. An insurer may deny the claim outright and not seek a declaratory judgment, but does so at its peril because it can expose the insurer to significant liability if the insured later shows the insurer in fact had a duty to defend.