Colorado insurance protection for construction professionals
In this blog we will attempt to give construction professionals an overview of their rights under liability insurance policies, when an owner claims construction defects.
A construction professional is defined in law as an architect, contractor, subcontractor, developer, engineer or inspector furnishing the design, supervision, inspection or construction of an improvement to real property.
A statute which became effective in 2010, House Bill 10-1394, states that insurance companies must broadly interpret their duty to defend the construction professional under a commercial general liability policy in cases involving construction defect complaints. House Bill 10-1394 was written in response to a Colorado Court of Appeals decision which held that faulty workmanship is not insurable unless it causes damage to a property, and a claim of faulty workmanship does not constitute an “occurrence,” triggering an insurance company’s duty to defend the insured in a construction defect claim.
For the purposes of guiding and applying liability insurance policies issued to construction professionals, HB 10-1394 imposes the following rules of contract construction to guide a court in construing general liability insurance policies issued to construction professionals: 1) A court should presume that the work of a construction professional that results in property damage is an accident unless the property damage is intended and expected by the insured. 2) When weighing conflicting provisions, the court should construe the policy and harmonize the conflicts to favor coverage. 3) A court may consider and give weight to appropriate writings not included in the insurance contract to determine the construction professional’s reasonable expectations as to the extent of his or her coverage. 4) The insurer bears the burden of proving that a policy provision limits or bars coverage. The 2010 act also prohibits a general liability policy insurer from excluding or limiting coverage of construction damages that occur before the policy period began but continue after the policy began, unless the insured knew of the damage when the policy period began. A policy provision that conflicts with this rule is unenforceable.
It is important to note there is a distinction between an insurance company’s duty to defend a construction professional accused of construction defects, and the duty to actual insure or cover any losses. Colorado is more willing to impose a duty to defend than it is to impose a duty to pay damages. Many construction defect lawsuits are defended under a “reservation of rights”, which essentially says the insurance company will help to defend the claims, but may not pay if the construction professional loses.