Does a builder have insurance if a building has defects? Beware builders and owners!

Most builders or contractors have a commercial general liability ("CGL") insurance policy for a particular project.  It is often required by the construction lender.  However, whether this policy actually affords any meaningful insurance to either the contractor or the owner is another question.

Much to the surprise of builders and owners, construction defects are generally NOT covered by either a CGL policy or the owner's homeowners policy (or business policy).  The example we often give clients is that if your roof leaked as a result of a construction defect, the insurance company might pay for the damage the leak caused, but not the cost of repairing the leak.

Reduced to the most basic terms, a CGL policy will only cover losses caused by an "occurrence" not a defect.  An occurrence could be a fire or storm, for example, that occurs while the builder is working on the project.  It would also likely cover personal injuries suffered by third parties on the job.

Several years ago, CGL policies provided additional insurance for subcontractors on the job.  Under these older policies, if a contractor was negligent, it might be covered under the policy.  However, in more recent years that coverage has been written out of the policy and can only be acquired by purchasing a separate endorsement from the insurance company.

For builders who find themselves without coverage and facing a substantial claim - bankruptcy may be the only alternative which is terrible news for both the contractor and the owner.

Email me if you have other questions.

This blog does not create an attorney-client relationship. You should not rely upon this blog for legal advice, but instead should consult an attorney experienced in your area of concern.

New lien laws that every contractor and sub-contractor must know

As of April 1, 2013, there are new lien laws that every contractor and subcontractor MUST be aware of prior to commencing work on a project.  These laws apply to any project that first begins work after April 1, 2013.

As a result of extensive lobbying by the title insurance industry, the NC General Assembly recently enacted N.C. Gen. Stat. 44A-11.1 and 11.2.  In short, these statutes have created the position of a lien agent for any project greater than $30,000.00 (unless the project is at a private residence, to which exceptions apply).  Every owner is now required to designate a lien agent prior to commencement of construction.  Said lien agent shall be designated on the building permit or somewhere else on the property, and said individual's name shall be given by owner upon request of the contractor.  Contractors are thus required to give the name of designated agent to subs, and so forth down the line.

Here is the most important part: if you do work or supply materials to a work site, you are deemed a potential lien claimant.  In order to indefinitely protect your future lien rights (as against future owners of the property), you must send a notice to lien agent that you are a potential lien claimant within fifteen days after first furnishing labor or materials. 

An attorney experienced in representing contractors and subcontractors can help you prepare and serve these notices.  If a notice is not timely and properly prepared and served, you potentially lose your right to enforce a lien on the property against a subsequent purchaser.

It is important to note that a notice to lien agent (described above) is not a substitute for filing a lien.  But for a few minor changes, statutes governing liens on property and liens on funds remain unchanged.  As has always been the case, if you find yourself in a situation where payment for work or materials is delayed, you should contact an attorney to protect your rights.  S/he can also advise you on ways to best protect your business in the future.


This blog does not create an attorney-client relationship. You should not rely upon this blog for legal advice, but instead should consult an attorney experienced in your area of concern.