Contract Law and Insurance - Home Builder & Buyer Dispute - Suggestions?

[MichaelRS]

Have a client who is being sued for a new home he is building that a customer signed a sales agreement on.

Due to continuing costs, the price for the final home has continued to increase.

Sales agreement included an "escalation clause" essentially allowing cost increases as costs rose.

Home was listed at 335k, then increased to 375k, then increased 435,500, then increased to 455k. Due to the issues at the site, the completion time has been hindered as well, by 6-9 months.

Primary motivator was increased environmental costs which pushed changes to the septic system but also overall inflationary problems with supplies that industry is seeing.

Buyer decided they had enough and is suing for breach of contract, fraud, good faith, detrimental reliance, negligence, etc.

I expected the carrier to issue a reservation of rights letter and defend the [outlandish] suit, but sounds like they are bordering on issuing a full denial saying "we don't have coverage for breach of contract, fraud, etc."

Ultimately, my take is the suit is being used as leverage against my client to sell the property at a reduced cost.

Trying to figure out the best path forward and wondering if any here have had any similar experiences and what the path you took was and any resulting outcome.

 

[MichaelRS]

So, long story short. Carrier ultimately denied the claim indicating "no trigger for BI or PD". I agree with that.

It would have been more interesting if the plaintiff claimed emotional distress as many policies include that as a bodily injury redefined enhancement or extension (our policy did).

Generally speaking, this is a claim that would be defended and covered by an error and omissions or contractor's professional liability policy.

I suggest that any agents out there with clients who are regularly negotiating and drafting contracts, with other contractors or directly with the public, obtain contractor professional liability insurance. At the least, you'll have a defense when it's needed.

Case and point, the attorney's retainer is 12,500. Would have been better if a carrier was footing that bill.

 

[ICACharleston]

Just out of curiosity, what would be a premium for such a policy with say a $500,000 limit?

 

[MichaelRS]

Just out of curiosity, what would be a premium for such a policy with say a $500,000 limit?

A lot of factors, but premiums these days usually start around 3k for a 1M limit. Factors are sales, payroll, industry, loss history, etc.

Smaller contractors, particularly artisans, can obtain limits for less.

For instance, a HVAC contractor with Nationwide can add a 100k limit for less than 750 annually, based on ~500k in payroll

UCPM has a great program for contractors professional (and pollution is available also). You can usually quote online with multiple carriers in minutes.

Remember, presenting the option is what saves you, not selling it. But, selling it is how we make money!

Ask the contractor what they think a lawyer charges for a retainer (most will over estimate). If they don't have that amount sitting around to pay for or aren't willing to give it up, insurance is cheap. If they underestimated, share with them that most non-specialized attorney's retainers start at 40 billable hours, one week, so 300/hr is a 12k bill. That could be multiple years of premiums built right into their budget AND, if there is a loss, it shouldn't affect their balance sheet as much as it could have otherwise.

 

[adjusterjack]

At the risk of pouring cold water over you folks, Contractor's Professional Liability (CPrL) does not cover breach of contract lawsuits.

I haven't located a sample policy form yet but there are enough articles on line describing what CPrL does cover and breach of contract is not one of them.

Perhaps one of you commercial agents can get a sample CPrL policy from one of your carriers and upload it here for review.

Don't be selling CPrL policies to your clients without having the policy form in front of you so you can figure out what's covered and what's not covered.

If I do find a policy sample, I'll be back.

 

[MichaelRS]

At the risk of pouring cold water over you folks, Contractor's Professional Liability (CPrL) does not cover breach of contract lawsuits.

If it's an intentional act, there will be a problem. Otherwise, if there's no exclusion for it, it will be covered. Policy forms should always be reviewed as they are not all created equal.

 

[adjusterjack]

If it's an intentional act, there will be a problem.

Of course there would be a problem. Intentional acts are excluded from liability policies.

Otherwise, if there's no exclusion for it, it will be covered.

Not necessarily. Ever hear of Named Perils? Where there is only coverage for those items specifically listed and there would be no need for exclusions for anything not listed.

Policy forms should always be reviewed as they are not all created equal.

Amen to that.