Source: https://www.weberrose.com/blog/2018/7/10/builders-risk-insurance-part-five
Timestamp: 2019-04-21 05:15:07+00:00

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The wise real estate attorney in this instance should also strongly consider obtaining an Owner’s and Contractors Protective policy. This standalone policy is designed to give the owner protection against losses resulting from the contractor’s activities or resulting from the owner’s actions related to the supervision of the contractor’s activities.
However, these policies have a universal theory that guides their underwriters: the doctrine of fortuity.
Indeed, ‘the fortuity principle’ is central to the notion of what constitutes insurance … ‘ Although we have used the term ‘fortuity’ in the past, we have not fully explored its breadth and scope. In short, fortuity consists of two central aspects: intent, which we have discussed in earlier opinions, and control, which we have not previously discussed. We recently recognized that the concept of fortuity is ‘inherent in all liability policies,’ and explained that a loss was fortuitous if it was ‘not intended. ... ‘ …. For an event to be truly fortuitous, it must, of course, be accidental because the policy only covers occurrences that are accidents. … Or, in other words, a court must bear in mind that a fortuitous event is one that is ‘beyond the power of any human being to bring … to pass, [or is] … within the control of third persons … ‘ It is abundantly clear, therefore, that the issue of control is encompassed in the fortuity doctrine.
Keep in mind that while this decision discussed a liability policy as opposed to a property policy, the reasoning may still be applicable as this doctrine flows with the general theory of insurance. Some courts have also held that this doctrine of fortuity underlies “all risks” policies as well.
Cleary, Elite had control over the construction of the Mintmans’ home, either directly or through the subcontractors it chose. One cannot logically say, therefore, that the allegedly substandard construction of the Mintmans’ home by Elite was fortuitous, truly accidental event. This leads to the inevitable conclusion that the faulty workmanship claim at issue is not covered by the CGL policy Elite purchased from Motorists because the faulty workmanship was not an accidental occurrence.
Ultimately, the faulty workmanship was held to not be an “accident,” which was required to trigger coverage under the commercial general liability policy.
By extension, an insured who purchased a Builder’s Risk Insurance policy that is an “all risks policy” that applies to property may expect to have broader coverage for faulty workmanship – but courts have sometimes applied similar reasoning when interpreting these types of policies.
We are mindful of the many cases that have found defective workmanship to be a risk covered by all risk policies. These cases, however, have dealt with an accident caused by defective workmanship, not with the cost of repairing or replacing defective workmanship. … In our case, the faulty workmanship, the twist, has not led to any such accident. In fact, in all of the cases cited by plaintiff, and that we have found, on this issue, faulty workmanship or design led to a discrete event that a reasonable person would call an accident.
In essence, an attorney advising a property owner should never assume that a Builder’s Risk Insurance policy issued in a particular state will offer coverage for losses attributable solely to faulty workmanship. If necessary, seek counsel with an insurance attorney on how these insuring agreements have been interpreted in a particular state. If courts in your state have not considered defective workmanship to be covered, a wise property owner should not rely on a Builder’s Risk Insurance policy to cover costs of a contractor’s faulty work and may also consider requiring the contractor to provide a performance bond.
 See, e.g., Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 269 (5th Cir. 1990)(emphasis added).
 See, e.g., Standard Fire Ins. Co. v. Chester-O’Donley & Assoc., 972 S.W.2d 1, 15-16 (Court of Appeals of Tennessee, 1998).
 See, e.g., Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 269-70 (5th Cir. 1990)(emphasis added).
 See Crossman Cmtys. Of N.C. v. Harleysville Mut. Ins. Co., 395 S.C. 40 (Supreme Court of South Carolina, 2011).
 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010).
 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 74-76 (Ky. 2010).
 See Morrison Grain Co. v. Utica Mut. Ins. Co., 632 F.2d 424, 430-31 (5th 1980).
 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 71 (Ky. 2010).
 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 76 (Ky. 2010).
 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 79-80 (Ky. 2010).
 Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267 (5th 1990).
 See Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 268 (5th 1990).
 See Trinity Industries, Inc. v. Insurance Co. of North America, 916 F.2d 267, 270 (5th 1990).
 See Complex Construction Defect Claims Involving Performance Bonds and Insurance: Who Pays First? (Part 1), Patrick J. Wielinksi, June 2006, available at http://www.irmi.com/expert/articles/2006/wielinski06.aspx.
 See, e.g., Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161 (Supreme Court of Florida 2003), holding that an exclusion to a builder’s risk policy for losses due to a design defect was enforceable.

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