Developers erecting new housing on vacant land or helping commercial property owners fulfill the terms of a build-to-suit lease are at constant risk of losses. Inclement weather, fires that start elsewhere and even mistakes by employees can lead to damaged equipment, lost materials and the destruction of nearly-complete structures.
In those scenarios, developers may need to file insurance claims to recoup their losses. However, many policies that cover construction and development projects have significant exclusions integrated into the policy language. Developers sometimes fail to properly assess the situation and may convince themselves that they cannot file a claim due to the nature of the loss.
Sometimes, excluded events lead to substantial property damage by causing secondary incidents. In such cases, the ensuing loss doctrine may allow for a successful insurance claim.
What is an ensuing loss?
A developer may have a general insurance policy that does not provide coverage for flood damage, for example. When a flood occurs nearby, the destabilization of the soil could lead to damage to the temporary electrical supply for the job site, which in turn causes a fire. The fire damages equipment and partially-completed structures.
People might assume that because a flood caused the electrical issue that produced the fire, the damage from the fire is not eligible for coverage. However, the flood did not destroy the structure. A fire, which is a covered event, caused the damage. Therefore, the policy protecting the developer may apply and they can file a claim for lost materials and possibly even the wage expenses involved in redoing the work after the fire.
The policies carried by businesses may also exclude claims related to faulty workmanship. However, poor workmanship could result in secondary issues, such as fires. The developer may then need to investigate to determine what losses were directly caused by poor workmanship and what losses were the result of secondary covered incidents to pursue a claim under the ensuing loss doctrine.
Although the workmanship itself was excluded from coverage, meaning that the policy would not pay for damage directly caused by poor workmanship, the policy may cover the damage generated by a fire or similar event that was the result of improper work practices.
Commercial insurance policies protecting development companies are often too complex for busy professionals to assess on their own. Sitting down with a lawyer familiar with development law and complicated insurance claims may make it easier for those working on large development projects to obtain the coverage they deserve after unexpected project setbacks.