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"The" or "A:" Articles Matter in Construction Insurance Policies

"The" or "A:" Articles Matter in Construction Insurance Policies

Tuesday, October 20, 2015/Categories: Construction Insurance, Construction Law, Contractors Insurance, Contractor Liability, General Liability Insurance

Back in your school days, you may have sat at your desk, bored out of your mind, wondering why you even needed to learn the intricacies of English grammar anyway. Well, not to sound like your old teacher, but sit up and pay attention. One recent court case shows that the specifics of language – especially in your insurance policies and other contracts – can have a big impact on the future of your construction business.

The Case: A Word Away from Coverage

The details of the case come to us from an article on JD Supra Business Advisor, which states Randy Kaady, a mason, was subcontracted to perform work on a residential project in Government Camp, Oregon, in 2006. His job was to install manufactured stone veneer on wall sheathing and around deck posts and install masonry caps on the posts.

Four months after he completed his work, the report notes he…

  • Was notified of cracks that appeared in the masonry caps and veneer.
  • Inspected the cracks and determined they were likely the cause of substrate settling, contracting, or expanding.
  • Purchased a Commercial General Liability policy from Mid-Continent Casualty Company a few months after his inspection.

Here’s where the case gets interesting and the wording gets important. The report states his insurance policy contained a “known-loss” exclusion, which means coverage applies for property damage “only if no insured knew that the ‘property damage’ had occurred, in whole or in part” (emphasis ours).

See the “the” in that statement? That’s a definite article in grammar, meaning it signifies a specific thing. That will be important in a little bit.

According to the report, the Homeowners’ Association sued the project developer for damage caused by construction defects, which included “deterioration” of the wall sheathing and deck posts behind the veneer Kaady had installed. The report states the claims were settled, but when Kaady sought indemnification under his insurance policy, his claim was denied. The reasoning? He had known about the cracks in the veneer before purchasing the policy.

Kaady appealed. The report states he admitted he knew about the cracks but had no knowledge of the deterioration of the deck posts and wall sheathing underneath, which is what the original lawsuit had been about. Therefore, he had known about some property damage, but not the property damage in question. The court agreed, and boom! English nerds across the nation cheered because articles really do matter.

What You Can Learn from This Lawsuit

There are three main takeaways from this case that any contractor or construction business owner should keep in mind:

  1. The language in a policy or a contract is important. The appeals case essentially rested on a single word in the written policy. Not an extraordinary word, but an important word. Whenever dealing with contracts, whether it’s an insurance policy or a job contract with a client, it’s important to know what the written language says and means.
  2. Lawsuits can take a long time and quite a bit of money to resolve. Consider the fact that the original lawsuit brought by the Homeowners’ Association was filed in 2007. The appeals case mentioned above took place in June 2015. That’s eight years from lawsuit to claim settlement. Of course, Kaady was challenging the insurer’s decision, which takes additional time and effort.
  3. Have coverage in place before something goes wrong. Kaady’s battle with his insurance company revolved around whether he knew about the property damage before signing up for the policy. If he had been carrying General Liability Insurance before taking the job, the whole ordeal might have been avoided – his claim may have been covered from the outset.

Be proactive in addressing your risks, and get insurance for your construction business. Don’t wait until something goes wrong, otherwise you might have to hire an attorney to pick apart grammatical structure in front of a judge.

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