Golden described it as a fairly recent development, particularly outside of the state of California, and not one that insurers were prepared for. The decision had to do with pollution, but it quickly overlapped into long-tail exposures.”Homebuilders, contractors and class-action lawyers jumped on the ruling as a means to pass the buck to insurers. With Montrose, you can actually have many occurrences over a long period of time. “Before Montrose, everyone thought that an occurrence should be within a 12-month policy timeframe an occurrence was one point in time. “Montrose basically extended the occurrence timeframe that the insurance policies became responsible to respond to,” said Bill Cooper, president of W.K. The California Supreme Court ruled that in third-party liability cases in which damage occurred over a period of years, any policy in effect during any part of that period could be liable for damages. Admiral Insurance Company focused national attention on construction defect. In 1994, the case of Montrose Chemical Corp. “But there are others that you may never be able to write profitably: large garden apartments, large condo complexes or townhome complexes…it’s the opportunity for one flaw in one to be multiplied 200 times, because everything’s the same.”ĭo insurers have a hope against the kind of bank-breaking damages paid out in these all-too-common cases? The answer is yes, if they take precautions to protect themselves and charge a sufficient premium for the coverage. “Within the construction segment, there are many subsegments and some of them can be profitable if underwritten correctly,” Olson said. In his years in the construction industry, Olson has seen defect litigation move from California to such “hot spots” as Nevada, Arizona, Texas, Illinois and Florida. Olson is president of Solvang-based West Star of California Insurance Services LLC, a program manager specializing in California construction risks. Miller touts its “Proud Record of Recovery” on its Web site, with the largest recovery in Los Angeles County listed at $15,220,000 for a 416-unit high-rise luxury condominium development. The Miller Law Firm is one such firm, with offices in Phoenix, Las Vegas and Portland, as well as San Francisco, Thousand Oaks and Newport Beach. Law firms specializing in construction defect have popped up across California and are now opening branch offices in Nevada and Arizona. “That’s how the whole thing has progressed, from starting out with situations that had real merit, to now situations that may not ever have merit to them.”Īccording to the California Department of Finance, California needs 250,000 new housing starts per year in order to accommodate the population yet only 139,000 units were built last year. “It’s like so many other litigation trends we run into, they tend to start out based on the classic horrendous story and branch out from there,” said David Golden, director of commercial lines for the National Association of Independent Insurers (NAII).
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