A recent federal court ruling has brought attention to a troubling issue in the construction insurance industry. The 11th U.S. Circuit Court of Appeals ruled in favor of Liberty Mutual’s surplus carrier, emphasizing concerns over contractor-controlled insurance programs, or CCIPs. This decision underscores a common problem: insurers may mislead contractors about the coverage they provide.
Patrick Wielinski, a Dallas attorney who contributed to an amicus brief in the case, highlighted that this issue is widespread in the industry. He explained that many insurance companies market CCIPs as offering better coverage but often include exclusions that contractors do not fully understand. Specifically, these policies can delay coverage for defects or property damage until the entire construction project is finished.
The case in question, Liberty Surplus Insurance vs. Kaufman Lynn Construction, began five years ago after Tropical Storm Eta caused significant damage to a project in Florida. Kaufman Lynn, a large commercial builder, was constructing a new campus for JM Family Enterprises. Although part of the project was completed, the storm led to $3.3 million in damage due to water intrusion.
When Kaufman Lynn filed a claim with Liberty Surplus, the insurer denied it based on a course of construction exclusion in the policy. This exclusion stated that coverage would not apply until the entire project was completed, which the court upheld. The judges noted that while the policy language could have been clearer, its meaning was not ambiguous.
Wielinski argued that many contractors rely on CCIPs to account for phased work. Without clear coverage for issues that arise during these phases, contractors can find themselves with significant gaps in their insurance. Liberty’s attorneys countered that Kaufman Lynn did not follow the outlined phases and failed to address the policy’s terms when it was issued.
This case serves as a reminder for contractors to read their insurance policies carefully. Wielinski pointed out that the legal landscape surrounding these exclusions is changing, suggesting that courts may increasingly support coverage for unexpected damage. He advised that insured parties in Florida should act quickly if they believe their policy contains mistakes, as there is a five-year statute of limitations for reformation claims.
As the construction industry continues to grapple with insurance challenges, this ruling highlights the need for clearer communication between insurers and contractors regarding coverage terms.