A Herndon general contractor purchased a builder’s risk policy for a $14 million commercial renovation project, paid the premium faithfully, and submitted a claim after a fire caused significant damage to completed work and materials stored on-site. The carrier denied a substantial portion of the claim on the grounds that the damaged materials were not “in transit” or “at the site” as defined in the policy’s coverage grant, that the contractor had failed to report a change in scope that the policy treated as a material change requiring endorsement, and that certain completed work that burned had already been accepted by the owner and therefore was no longer covered under the builder’s risk form. The contractor’s loss on the claim exceeded the cost of having an attorney review the policy at the start of the project by a factor of several hundred.
Construction insurance on Fairfax County projects involves multiple policy types, multiple carriers, complex coverage overlaps and gaps, and claims processes that reward policyholders who understand the specific language of their policies and punish those who assume coverage exists based on the general category of insurance they purchased. Builder’s risk policies, commercial general liability policies, professional liability policies, and umbrella policies each have coverage grants, exclusions, conditions, and claim procedures that determine whether a loss event produces a paid claim or a coverage dispute.
Shin Law Office advises contractors, developers, and property owners throughout Fairfax County on construction insurance coverage disputes, carrier coverage positions, bad faith claims, and the coordination of multiple policies when a single loss event involves coverage from more than one source.
Builder’s Risk Coverage: What It Covers and What the Exclusions Take Away
A builder’s risk policy insures property under construction against physical loss or damage during the construction period. It typically covers the structure under construction, materials to be incorporated into the structure, and in some forms, temporary structures and equipment used in construction. The coverage sounds broad. The exclusions narrow it significantly. Faulty workmanship exclusions, design error exclusions, mechanical breakdown exclusions, and the critical distinction between the damaged work itself versus resultant damage caused by the defective work all create coverage disputes that carriers exploit when claims arise.
The Faulty Workmanship Exclusion and the Resulting Loss Exception
Most builder’s risk policies exclude coverage for the cost of repairing or replacing faulty workmanship, but they cover resultant damage that faulty workmanship causes to otherwise undamaged portions of the project. On a Vienna commercial project, a roofing contractor’s improper installation may not be covered under the builder’s risk policy’s direct coverage grant, but the water damage to the interior finishes, structural elements, and mechanical systems caused by that defective installation may be covered under the resulting loss exception. The line between the defective work and the resulting damage is contested ground in almost every builder’s risk defect-related claim, and experienced coverage counsel significantly affects where that line is drawn.
Commercial general liability policies covering Fairfax County contractors exclude coverage for property damage to “your work” arising out of the work itself, often eliminating coverage for the contractor’s own defective workmanship on the damaged property. However, the CGL’s subcontractor exception restores coverage when the defective work was performed by a subcontractor, making the characterization of who performed the defective work a coverage-determinative question. Contractors in Herndon who subcontract work typically have broader CGL coverage for resulting defect claims than contractors who self-perform the same work. Understanding this distinction matters both when purchasing coverage and when responding to a carrier’s coverage position on a claim.
Additional Insured Status: Are You Actually Protected?
Construction contracts in Fairfax County routinely require subcontractors to name the general contractor and often the project owner as additional insureds on the subcontractor’s CGL policy. The purpose is to extend the subcontractor’s coverage to protect the general contractor and owner for claims arising from the subcontractor’s work. Whether additional insured status actually provides meaningful protection depends on the specific additional insured endorsement form on the policy, the scope of the additional insured coverage it provides, and whether the endorsement covers completed operations claims after the project is finished. Many additional insured endorsements issued on Fairfax County projects provide narrower coverage than the contract requires, and the discrepancy is not discovered until a claim arises and coverage is denied.
Virginia recognizes a cause of action against insurance carriers who act in bad faith in handling claims. When a carrier denies a legitimate claim without a reasonable basis, delays payment without justification, or fails to conduct a reasonable investigation before denying coverage, the carrier may face liability beyond the policy limits for the harm caused by its bad faith conduct. For Herndon and Vienna contractors whose construction projects have been significantly harmed by a carrier’s wrongful denial of a claim that should have been paid, the bad faith claim is a tool that experienced coverage counsel can evaluate and, when the facts support it, aggressively pursue.
Coordinating Multiple Policies After a Major Loss
A serious loss event on a Fairfax County construction project, a fire, a structural collapse, major water intrusion, or a significant construction accident, typically involves multiple policies, multiple carriers, and complex questions about which policy is primary, which is excess, and how each carrier’s coverage interacts with the others. The builder’s risk carrier, the GC’s CGL carrier, the subcontractor’s CGL carrier, and the project owner’s property carrier may all have an interest in the same loss. Coordinating these coverages, presenting the claim correctly to each carrier, and managing the interactions among multiple coverage positions is specialized work that requires both insurance coverage knowledge and construction law expertise working together from the beginning of the claims process.
Frequently Asked Questions
Builder’s risk insurance covers physical loss or damage to a construction project during the build phase, including structures, materials, and sometimes temporary equipment, subject to policy terms and exclusions.
Claims are often denied due to policy exclusions, failure to meet coverage conditions, improper reporting of changes in scope, or disputes over whether the loss falls within the policy’s coverage definitions.
The faulty workmanship exclusion typically prevents coverage for the cost of repairing defective work itself, but may still allow coverage for damage caused by that defective work to other parts of the project.
Additional insured status extends insurance coverage from one party’s policy to another, such as a subcontractor providing coverage to a general contractor or owner for claims related to the subcontractor’s work.
Insurance bad faith occurs when a carrier unreasonably denies, delays, or mishandles a valid claim. In some cases, this can expose the insurer to additional liability beyond the policy limits.
Related Articles
References
Insurance Services Office, Inc. (2013). Commercial general liability coverage form CG 00 01. ISO Properties, Inc.
Virginia General Assembly. (2024). Code of Virginia § 38.2-209: Unfair claim settlement practices. https://law.lis.virginia.gov/vacode/38.2-209/
Wielinski, P. M. (Ed.). (2020). Construction insurance: A guide for attorneys and other professionals (4th ed.). International Risk Management Institute.
Stempel, J. W., Knutsen, E. S., & Swisher, P. N. (2021). Principles of insurance law (5th ed.). LexisNexis.
American Bar Association Forum on Construction Law. (2022). Insurance issues in construction: Coverage, claims, and disputes. ABA Publishing.
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