The construction industry is in full swing and new townhomes, condos, and tract homes are going up everywhere!   Why then, do so many insurance companies either limit the number of townhomes, condo’s or tract homes your contractor can work on, or decline to write a General Liability policy for them outright?  The answer of course is… CLAIMS!

Take for example, the following scenario:

The General Contractor on a new construction project of five townhome buildings (30 units), hired and supervised all the subcontractors needed to complete the project.  They collected proof of General Liability insurance from all subcontractors, and assumed that if a claim occurred, the subcontractor’s insurance policy would respond.  

One of the subcontractors was hired solely to tile all the bathroom and kitchen floors. This subcontractor had their own General Liability insurance and provided proof of insurance to the General Contractor.

Another subcontractor was hired to install the roofs.  This subcontractor also had their own General Liability insurance and provided proof to the General Contractor.

Two years after the job was completed it was found the roofs were installed improperly and the buildings suffered water damage.  The townhome association hired an attorney and brought a lawsuit against every contractor that was involved in the construction of the townhomes.   

The tile subcontractor was certainly not responsible for damage, but his CGL policy provided an attorney to defend him and he was eventually removed from the lawsuit.  Even when a contractor is not at fault, defense costs can be considerable and can easily put a small contractor out of business.

The roofing subcontractor had General Liability insurance.  The policy did not contain a form that excluded or limited townhome/condo/tract home construction, but the limits were not adequate to cover all the damages.

The General Contractor also had General Liability insurance that did not exclude or limit townhome/condo/ tract home construction.  This policy would end up paying the majority of the claim for this large loss.  

While the above is a simplified scenario, these types of claims can and do happen.  Flaws in construction design, poor workmanship, and a wide variety of other factors are magnified and multiplied in developments of townhomes, condos, and tract homes causing large losses for insurance carriers and larger premiums for insureds.

Erickson-Larsen can help! Please contact our experienced staff at E&L for specific insurance requirements and questions, visit our website:

Disclaimer: This article is intended for general information purposes only.  The information contained is not intended to constitute and should not be considered legal or professional advice, nor does it represent that coverage does or does not exist for any particular claim or loss under any policy.