Defect Claims 101: An Insurance Agent’s Perspective

Written by: Bruce A. Baker CPCU 

DEFECT CLAIMS 101 AN INSURANCE AGENTS PERSPECTIVEAmerica, the land of the free and the home of the brave, has also been known to be the land of litigation. So as a CPVC contractor it is incumbent on you to know that at some point you and/or your company may be subjected to litigation containing defect allegations. Based on that, there are a few key things to remember when this occurs:

  1. If you or any of your employees hear that there has been litigation surrounding any project you worked on or are working on, contact your insurance agent and consult with your personal counsel to discuss. Your insurance agent will provide you with information on what to do. Sometimes setting up a “notice only” claim with your insurance carrier will help you get in front of a potential claim. It allows your carrier to gather information from you that may be pertinent in defending any future claim related to the alleged defect that occurred on the site you were working. Many times the plaintiff may take several years to add defendants. If you are added years after the alleged incident occurred and/or when the lawsuit began, you and your insurance carrier will find yourself behind in the fact finding investigation. Remember as time goes on information and facts as they may have occurred at the time of the alleged incident can become unavailable.
  2. Should you receive any notice, letter, email, fax, phone call or lawsuit alleging any type of defect as it relates to the project in which you were involved, immediately report this to your insurance company and/or insurance broker.
  3. Do not respond to the notice, letter, email, fax, call or lawsuit until you have spoken to your insurance carrier, broker and consulted with your personal counsel as any statement or response could be detrimental in the defense of the claim.
  4. Advise your employees not to discuss any issue with any media or anyone outside of the company.
  5. After your discussion with your carrier, broker and consulting with your personal counsel, depending on the extremity of the defect allegation, you may have to hire a public relations company to assist with any statement issued to the public or use your internal resources (staff attorney, public relations department, etc.).
  6. If a lawsuit is filed, the insurance carrier will assign a defense firm to answer on your behalf and defend the interests of the company to the extent coverage is afforded under their policy. (assignment of defense counsel by the insurance carrier is contingent upon the allegations of the claim and/or complaint being covered under the insurance policy).
  7. The insurance carrier will then begin their investigation, they will ask you for information as it relates to the allegation(s). Some of the questions may be:

    1. what are the terms and conditions of your contract as it relates to the allegations;
    2. do you have a copy of the contract to send us;
    3. as it relates to the alleged defect what was your role, if any, on the job site (i.e. installation contractor, supplier etc.);
    4. did you use company employees on the job site, temporary employees or sub-contractors. If you used temporary employees did you verify their qualifications regarding the installation of CPVC. If you used any sub-contractors did you verify their qualifications with regard to the installation of the CPVC and do you have a written contract with them. If you have a written contract with them does it contain an indemnification, hold harmless and insurance clause. Are they required to name you as insureds under their policy;
    5. a list of all the employees on the job site along with their titles, roles and responsibilities during the entire term of the contract;
    6. was an investigation done internally, if so provide copies of any statements, pictures, etc. and the final report outlining the findings. If no investigation was done, why;
    7. how long have you been in business;
    8. how many years have you been installing CPVC;
    9. what is the average age and experience of the employees working at the job site;
    10. what hours did you work on the job site;
    11. who inspected your work and at what stage and were there “sign offs” regarding the work done and if so by whom;
    12. were there instructions given at the job site with regard to the installation and how to perform your duties; and
    13. did you keep a daily work log, if so can you provide a copy?

These are just a few questions a carrier may ask to start their investigation. As you provide the answers to these questions and the investigation continues, you will be asked many more questions. The insurance carrier is there to assist in the defense of the claim, but you will also need to take time to help by providing them with as much pertinent information as it relates to your role in the installation process. Many times it takes years to sort out the investigation and discovery on these types of cases. I would suggest, if not being done now, to create and/or use a system that will allow you to document the daily activities for each job you begin.

Bruce A. Baker, CPCU
President-Coral Gables Office
USI Insurance Services, LLC



USI began in 1994 with a single office of $6.5 million of revenue and 40 associates. Today, USI has over $1 billion of revenue with more than 4,400 associates in over 140 offices across the country.