Filed Under:Markets, Commercial Lines

Faulty Workmanship: A Legislative Issue?

There is a continuing dispute over insurance coverage for damage claims arising out of defective construction. Courts around the country have offered decisions about coverage or the lack thereof; insurers have denied coverage and granted coverage; and agents have had to explain to insureds why the claim is not covered or have tried to convince insurers that coverage exists.

This is all standard operating procedure in the insurance business. What is disconcerting to the process is the insistence of state legislatures on passing laws dictating to courts how to decide faulty-workmanship cases.

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For example, Colorado has enacted a law providing that when considering Commercial Liability policies issued to construction professionals, a court shall presume that the work of a construction professional that results in property damage—including damage to the work itself or other work—is an accident unless the property damage is intended and expected by the insured. As another example,Arkansashas amended its code to require that a Commercial General Liability insurance policy offered for sale in the state contain a definition of occurrence that includes the phrase “property damage or bodily injury resulting from faulty workmanship.” And I believe that South Carolina (and perhaps other states) has joined in this legislative handiwork.

Legislative handiwork? More like legislative interference or overreach. Not only does this practice interfere with a contractual agreement between insureds and insurers, it thrashes the “separation of powers” status that is well-established in this country. Contractual disputes are supposed to be settled by courts—not dictated by legislatures. Insureds and insurers are not always going to be pleased with a court ruling, but that is the system we have. (What's the old saying? This is a country based on the rule of law and not on the whims of men—something like that.)

The bottom line: Legislatures should stop trying to dictate how insurance contracts are interpreted.

WHO OWNS THE (EVENT) DATA?

Recording a final data picture just before an auto accident is no doubt very helpful to insurance adjusters.

There are many fine reasons to have event-data recorders (EDRs) placed in cars; in fact, the December 2011 edition of Claims magazine offers a well-written article on the benefits of EDRs. But, as the article notes, questions can arise over who owns the EDR data, who has access to the data and whether a driver should be made aware of the presence of an EDR in his or her car.

Courts will answer these questions (hopefully without the dictates of the legislatures). Personally, I would not want an EDR in my car. But if that is going to be the standard in auto-making, I want to be the owner of the data and the only voice as to whom the data is provided.

Is my reluctance to accept auto EDRs justifiable?

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