Practice Pointer – Top 5 Steps for Submitting a Property Damage Claim

By Karly Houchin*

1)  Make sure you have the right type of policy for the claim you are submitting.

Is it a claim for the client’s own property (first party)? Or is it defending against a claim made by someone else (third party)? See: Lee Shidlofsky and Doug Skelley’s excellent paper presented at the Basic Course in Texas Construction Law that explains these coverages: Shidlofsky & Skelley, A Primer on What Every Construction Lawyer Should Know About Insurance (Basic Course in Texas Construction Law 2023).

Once you know the type of claim you need to submit—first-party or third-party—determine which policy is in play. If property damage occurred during construction, you should look at the builder’s risk policy. If the property damage occurred after construction was complete, you should look at the owner’s property insurance and the general contractor’s commercial general liability policy, and potentially the design team’s professional liability policies.

2)  Gather and review the policies.

This step is critical. Most policies have strict timelines to submit claims so submit the claim as soon as possible. Determine when construction commenced and ended, and when the property damage occurred so that you can identify the right policy periods. If the construction occurred in 2020 through 2022 but the alleged damage occurred in 2023, you might need to make claims on several policies. Also, review the policy for how it defines “occurrence” or “claim.” The terms of the policy will specify which types of claims covered and when the insurer’s duty to defend is triggered.

The last note here: make sure you have a complete copy of the policy. Clients rarely have complete copies of the policy—check the list of endorsements (after the declarations page) to verify that you have a complete version. You do not want to be surprised later by an endorsement that excludes all property damage caused by roofing work for your roofing subcontractor client.

3)  Confirm who is the named insured and any additional insureds.

This comes up more than you’d expect, especially representing developers and general contractors. Developer XYZ might be a subsidiary of parent company D-XYZ, but the insurance policy only lists D-XYZ as the Named Insured. Check the policy to see how “Named Insured” is defined and if it automatically includes subsidiaries and related companies. Otherwise, there may be a gap in coverage, or a breach of the prime construction contract. Same thing for additional insured—check for any endorsements that say things like “Additional Insured means any entity that the Named Insured agreed to have as an Additional Insured to the policy via written contract.” If you represent the developer or project owner, you want to check if your client is listed as an Additional Insured on the general contractor’s policy. Many contracts require this.

4)  Review the policy’s exclusions and anticipate responses from the insurer.

This step requires factual analysis of whether the claim is for defective work or other property damage, and who performed the allegedly defective work. Most commercial general liability policies will have “Your Work Exclusions” that exclude damages for defective work performed by the insured. Insurance policies are not warranties for work to comply with plans and specifications; quite the opposite—insurance policies typically only cover other property damage caused by the insurer’s defective work. For example, if your client is a window installer and incorrectly installed windows that had to be replaced, a commercial general liability policy will likely exclude the cost to replace the defective windows under the Your Work Exclusions (in exclusions j(5), j(6), and l). But if your client’s improperly installed windows caused water to leak into the building and caused the drywall and wooden framing to crumble, that would likely be covered as property damage resulting from the insured’s defective work. It’s best to anticipate exclusions the insurer will raise and advise your client about potential coverage issues to set expectations.

5)  Send notice of the claim to the insurer.

Last but certainly not least:  Notify the insurer. The claim should be submitted with thought and care since whatever you put in the claim will determine the insurer’s response about coverage. The more detail you can include about why the damage is covered the better. Remember, it is the insured’s initial duty to show that the claim is covered by the policy and within the policy period. Then, it is the insurer’s duty to raise any exclusions that may apply.

After receiving a claim the insurer can either: (1) accept the claim and offer an unqualified defense; (2) accept the claim and offer a qualified defense subject to certain reservations, or (3) deny the claim and defense. Under Texas Insurance Code § 542.055, after insurers receive notice of a claim, the insurer must acknowledge receipt of the claim, begin to investigate the claim, and request any additional information it needs from the insured. Then, after the insurer receives requested information from the insured, the insurer has 15 more days to notify the insured if the claim was accepted or rejected, or request another 45 days to investigate. Tex. Ins. Code. Ann. § 542.056.

If your client receives a Reservation of Rights letter (for a qualified defense), you should respond to that letter if you disagree with the insurer’s position. In Texas, if an insured accepts the insurer’s defense subject to the Reservation of Rights letter, the insured agrees that the insurer has not waived any defense. If the insurer raises exclusions that do not apply to the claim, you should respond in writing that the insured accepts the defense but disagrees that certain exclusions apply. If this step takes you too far out of your wheelhouse, there are outside insurance coverage counsel who can assist.

*Karly Houchin is a Partner focusing on construction law at Allensworth in Austin.