Construction Defect: Why You Can’t Sue Your Builder’s Insurance Company

As a litigation attorney, I meet with many clients seeking advice because their new home construction or renovation project was done poorly. Whether these homeowners are dealing with big or small construction companies, the same problems arise when it comes to construction defects. Often, the contractor’s work was subpar, the homeowner spent thousands of dollars to fix the problems, and now the builder refuses to pay or has gone completely missing.

Many times, the homeowner comes to us believing  the solution is easy: find the builder’s insurance carrier and file a claim or sue them to get reimbursed. Unfortunately, in Pennsylvania, we are prohibited from doing so.

Why Can’t You Sue Your Builder’s Insurance Company?

In 1992, the Pennsylvania Superior Court discussed this issue in detail in a case called Strutz v. State Farm, 609 A.2d 569 (Pa. Super. 1992). The Superior Court held that a third party (in this case the injured homeowner) cannot bring an action directly against the insurance company because the homeowner is not the beneficiary of the insurance coverage. In simpler terms, the Superior Court said that since the homeowner was not paying the insurance premiums and does not have a contract with the insurance company, the insurance company has no obligation to pay them.

This concept is difficult to comprehend since common sense would suggest that insurance is supposed to protect the injured party not those who were responsible for the damage.

How to Benefit from Your Builder’s Insurance Coverage

However, even though you can’t file a claim against or sue your builder’s insurance carrier directly, you can still benefit from your builder’s insurance coverage. In many cases, when a construction defect leads to litigation, the builder will contact their insurance carrier to request that the carrier provide legal representation to defend against the construction defect claim. The insurance carrier would then be responsible for paying for any settlement or judgment against the builder.

What Can I Do to Find a Reputable Builder?

So, what can you take from all this as you consider taking on a home construction project? You should work with a builder or construction company that has a longstanding reputation in the community, can provide personal references, has a brick and mortar office, and, most importantly, is insured. Those companies pride themselves on doing good work and correcting their mistakes when they happen. If there is a problem with their work, it is more likely they will do their best to fix the problem or compensate you for any damage they may have caused to protect their reputation in the community.

Dealing with businesses with little to no reputation in the community and no clear business address can be risky. Those types of builders often don’t have adequate insurance and, if they do bad work, may just disappear leaving you with very little chance that you will ever get paid for the damage.

For many people, it can be difficult to afford the larger more esteemed companies, but be aware that paying the right price can be the best way to avoid serious headaches. In the end, there is value in knowing you will be properly protected should any damage occur. Support smaller business by checking references and ensuring they are committed to quality work and have the insurance to back it up.