From The Construction Zone: March 2001

Nevada’s Division of Insurance conducted a survey of contractors, insurance companies, and insurance agencies to access the availability and affordability of insurance.

The results depict an insurance market with, "A limiting of coverage by the carriers, coupled with an increase in rates and premiums for residential developers and contractors."

The survey form was sent to 1000 construction companies, 203 insurance agencies, and 544 insurance companies in August, the results tabulated over time.

Of the construction companies surveyed, not all those who got the survey chose to respond. Those who did were asked to answer questions such as, "Are you having any difficulties procuring construction defect coverage in Nevada?"

The answers reflected that insurance is getting more expensive, that carriers are discontinuing coverage for condos and town homes, that some carriers are canceling policies or non-renewing them, and that contractors are losing customers due to restrictions placed upon them by insurance carriers.

Contractors are passing the higher cost on to their customers, according to one response. The increased insurance cost will be passed on to buyers, and some potential home buyers (especially the first time buyer), will not be able to afford a home.

A builder reported that the construction defect claims process goes awry from the beginning. Citing that insurance companies either give him a new or inexperienced attorney to represent his case, or an attorney who is just "going through the motions" with the plaintiff’s attorneys. What really rankled the contractor was the chummy, "coffee club" atmosphere that exists between defense and plaintiff attorneys. They all seem to know one another, he said, the contractor being the only one not part of the club. "This can be seen at nearly every stage of litigation and it is simply a crime, in my estimation."

The most common claims for defects experienced by contractors are for condos, wind damage and subsidence issues. One contractor reacted bitterly to "boiler plate" defect lists that include items that do not even exist at the sites named in the claim. He said, "...As a homebuilder, I am guilty until proven innocent."

Insurance agencies responded that the trend in premiums is for increases, most of the respondents saying that premium increases were 15 percent or higher. New restrictions have multiplied into a laundry list of excluded coverages and excluded activities. Montrose exclusions are common, as are multi-family housing exclusions, condos and town home exclusions.

Agents are finding it harder to place coverage for framing, concrete and drywall contractors, or anyone that has more than 20 home starts a year. Another side of the issue is that while coverage has gotten more restricted, and more complicated, the agents feel that the contractors understand it less and less.

Of the 221 insurance carriers that participated in the DOI’s survey, 193 of them had not written construction risk coverage in the last four years, 17 were still writing coverage (many with restrictions or exclusions), and 11 carriers had stopped writing contractors altogether.