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Insurance coverage of construction defect-related damages not always straightforward matter

Recently, we discussed on this blog the topic of Assignment of Benefits agreements, and some of the things contractors need to keep in mind when entering into these agreements to ensure they have reasonable prospects of recovering costs incurred in home repairs. A recent Florida insurance dispute finally settled by the Florida Supreme Court highlights the type of issues that can come up in insurance disputes.

The case involved a homeowner whose property sustained water damage during rainstorms due to construction defects, and later property and wind damage. While the insurance company covered the wind damage, coverage for water damage was denied due to language that excluded coverage for damage caused by construction defects. This occurred even though the policy covered both structural damage due to rainwater and damage due to hurricane-winds.

The case was taken to court and ultimately appealed to the Florida Supreme Court, which ruled in favor of the homeowner. The reasoning for the decision was that, because structural defects combined with rain and hurricane winds in this case as the cause of the damage, it wasn’t possible to determine the main reason for the damage to the home. Because of this, the insurance company was obligated to cover both losses.

The ruling was based on concurrent-cause doctrine, which states that when there are multiple causes for damage, the damage is covered, even if one of the causes is not covered under the policy. The case would probably have been decided differently if the main reason for the damage was determined to be construction defects, but that was not the case.

For contractors who enter into Assignment of Benefits agreements, it is important to keep such issues in mind before moving forward. By the same token, it is important for homeowners and contractors to understand how liability for construction defects works, especially when the homeowner’s insurance policy excludes damage caused by such defects. An experienced attorney is n essential resource for guidance and advocacy. 

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