Let's begin by sharing the results of efforts to obtain participation and contribution from other carriers toward settlement. For purposes of these examples, assume that the underlying tort claim is settled.
The first example involves a typical situation in which your policyholder is a general contractor and builder. Your policyholder contracted with a claimant to construct a custom home. Geological testing is not performed and the home is built on top of an underground spring and, in due course, structural damages become manifest.
You may not be able to identify the applicable coverage trigger in the given jurisdiction. Unless you can do so without help, we recommend that you assign coverage counsel to assist you with their advice and recommendations. Furthermore, even when your initial investigation is in progress, consider mailing tender letters to all other liability insurers that came on the risk before your policy incepted and after your policy terminated.
Assume for purposes of our first example that there are two other carriers, Company A and Company B, and that both of their policies came on the risk after your policy terminated. Both deny coverage in return correspondence, citing no policy language. Rather, the respective denials both typically say that the first manifestation of damages did not occur in their policy periods and that the given jurisdiction is a manifestation state. In fact, the first manifestation of damages was during your policy period, so you likely will undertake the defense of the claim and in due course, defense of the subsequent lawsuit. This case is very slow moving within the court, and plaintiffs' counsel, for whatever reason, may not push it along.
Because this is a potentially high-exposure loss, we recommend that you establish and regularly follow-up on a periodic diary, a continuing inquiry of your coverage counsel as to whether the given jurisdiction decisional law has altered the insurance coverage dynamic and, in our example, adopted a continuous coverage trigger. As and when an alteration occurs in the insurance coverage dynamic in the given jurisdiction, act promptly.
Using our example, assume that the decisional law in the given jurisdiction moves from a strictly manifestation approach to a coverage trigger, toward an approach that allows a continuous coverage trigger. In this example, you would promptly renew your company's tender to Company A and Company B. Company B, in our example, may stand on their denial because their contract had a continuous-claim exclusion built into its insuring agreement, which is intended to preclude coverage for continuing injury or damage that first began prior to the policy period and then continued to occur during the policy period. Such an exclusion is ordinarily written to apply regardless of whether anybody knew about the injury or damage at the time it began.
In our example, the issue involves the wording of another carrier's insurance policy, and so we recommend that you obtain a copy of their policy. If the necessary document that may determine the outcome of your investigation is a contract for sale and purchase by the claimant showing his right, title and interest in and to the real property on which the house is built, then obtain that contract. In short, it is always a appropriate to obtain whatever documentation is necessary in order for you to provide a first-hand, hands-on answer to your own questions and evaluations.
Continuing with our first example, you will then focus your attention on Company A, which has underwritten two policy years but the policies are earlier editions than that of Company B and presumably would not contain similar language. In due course, your suspicions are confirmed as Company A's contracts contain standard Forms and Endorsements perhaps well known to you from your experience with them. For example, 11/88 and 01/96 ISO CGL coverage parts and there are otherwise no restricting or limiting endorsements that affect coverage.
We recommend that you take all necessary steps to legitimately attempt to focus the attention of other insurance carriers to their risk of coverage for your policyholder in common. For example, consider attempts to arrange mediations for their participation with you. In our experience, which is perhaps counterintuitive to some people who have been involved in insurance coverage disputes, mediations can be successful, particularly where and when the underlying claims against the policyholder have already been reduced to a settlement.
The Seemingly Small
Our second illustration involves another all-too-frequently encountered situation in construction-defect cases. Assume that the liability carrier for a general contractor puts you on notice of a claim and seeks your voluntary contribution in settling the case because, "The claimant is a nice man, the amount at issue is very small, and further, the claimant is willing to resolve this without attorneys if possible."
Even in cases with a seemingly small amount involved, we recommend that you ask the requesting carrier to share its investigative information. We further recommend that you report the claim and case to the defense attorney whom you know from past files usually handles the policyholder's account on your behalf, so that he or the defense firm has the opportunity to coordinate with the other defendant's liability insurance company. (In this example, this would be the general contractor's insurance carrier.)
Next, take steps to satisfy yourself, your supervisors, and above all, your policyholder to ensure that he is afforded a defense aimed to protect the policyholder to the best of counsel's ability and, if liability existed, to negotiate a reasonable settlement. In particular, look for signs that reflect whether or not anyone involved in the defense and investigation seemingly "threw in the towel," or resolved to do as little as possible before effecting a pro rata contribution settlement with other defendants where the amount at issue is supposedly "small."
Lastly, develop the habit of observing what is not written because, on occasion, one needs to see what's not there in order to appreciate what needs to be done.
In general terms, consider the basics. Start from scratch. When investigating claims in construction matters, consider whether any given claimant, when he purchased his home, may have himself been the beneficiary of a reduced price with an "as-is" provision in a contract of sale-offer and acceptance.
Furthermore, it might not be unrealistic that the agreement could have a requirement that the seller place a significant amount of money into an escrow account. (For example, in the common case where the replacement of synthetic stucco is at issue.) Under these circumstances, you might want to determine who held the trust account, when it was disbursed, to whom, and for what purpose.
If the claimant is found to be double dipping then she or he might then be guilty of insurance fraud that could subject her or him to felony charges and prison time. To get this information contact the closing attorney involved with the claimant's purchase of the subject home. An alternative would be for defense counsel to subpoena all records from the real estate firm that handled the transaction.
In addition to obvious statute of limitation issues in many construction claims, consider whether the given jurisdiction has an applicable statute of repose. Depending on when a house is first occupied, the lawsuit may be filed by the current owner after the statute of repose has time-barred a lawsuit based on the particular construction-defect claim at issue.
Sometimes you can make something out of nothing but to do so you first have to look under all the rocks, beneath the bed, and into the closet.