Liability Insurance for Tract and For-Sale Residential Work

California's Title 7 of the Civil Code, commonly called SB 800, sets functional standards for new residential construction intended to be sold as an individual dwelling unit and limits claims to violations of those standards, with exceptions in the title. Civil Code §896 lists the standards by system, including water intrusion through doors, windows, roofs, decks, stucco and foundations, plumbing and sewer leaks and soil and structural issues. Section 938 applies the title to new units where the purchase agreement was signed on or after January 1, 2003.

The title assigns its duties to the builder. Civil Code §911 defines the builder as the entity in the business of selling residential units to the public for the property, and treats a general contractor that is not a partner, member, subsidiary or similar affiliate of the builder like a subcontractor. Section 912 requires the builder to produce plans, soils reports and maintenance documents within 30 days of a written request, keep an agent for notice and record a notice of the procedures on title. A builder that misses those duties can lose the protection of the prelitigation chapter.

Section 941 generally bars actions under the title more than 10 years after substantial completion, and it counts indemnity actions against trades within that period. A policy program for a California tract has to be read against that horizon, not just the build schedule.

The prelitigation process runs on short clocks. Under Civil Code §916, a builder that elects to inspect must complete the initial inspection and testing within 14 days after acknowledging the claim, and must provide written proof that it has liability insurance for damage or injury during inspection and testing. The builder must also give notice to any subcontractor, design professional, product manufacturer or supplier it intends to hold responsible early enough for them to attend the inspection.

Section 917 then gives the builder 30 days after the inspection to make a written repair offer, which must name the contractors who will perform the repair, and those contractors must be fully insured for damage they cause during the repair. A repair offer is a financial commitment. Many liability policies condition coverage on the insurer's consent before the insured makes voluntary payments or assumes obligations, so the builder should bring the insurer in before the offer goes out.

Downstream, Civil Code §2782(d) limits what a builder can shift to a subcontractor for defect claims on residential contracts entered after January 1, 2009, and §2782(e) says a subcontractor owes no defense until it receives a written tender with the claimant's information; a subcontractor that elects to defend with counsel of its choice must give written notice of that election no later than 90 days after receiving the tender.

Texas Property Code chapter 27 governs most actions for residential construction defects. Its definition of residence covers detached one- and two-family dwellings, townhouses up to three stories with separate egress, duplexes through quadruplexes and condominium or cooperative units with their common elements. Section 27.002 excludes claims for personal injury, survival, wrongful death and damage to goods.

Before the 60th day preceding suit, the claimant must give the contractor written notice by certified mail describing the defects and provide its evidence. The contractor may request up to three inspections in the 35 days after it receives the notice and may make a written settlement offer within 60 days after receiving it. If the claimant rejects a reasonable offer, §27.004(e) limits recovery to the fair market value of the offer plus fees incurred before rejection. Section 27.007 requires most contracts subject to the chapter to carry a printed notice about the act, with a $500 civil penalty if it is missing.

Two provisions matter for insurance. The act's definition of contractor includes a registered risk retention group that insures a contractor's liability for residential defect repairs, and §27.004(p) preserves the contractor's contribution rights against a subcontractor it notified of the claim. Texas' anti-indemnity rules in Insurance Code chapter 151 also do not affect indemnity provisions for a single-family house, townhouse, duplex or related land development under §151.105(10).

Arizona's purchaser dwelling action statutes, A.R.S. §12-1361 and following, apply to construction defect actions a purchaser brings against the seller of a dwelling, which includes single and multifamily units and association common areas. The seller is defined to include construction professionals, from developers and builders to subcontractors and suppliers. Section 12-1366 excludes personal injury and death claims and damage to property other than the dwelling.

Before suing, the purchaser must send written notice by certified mail, and the seller must promptly forward a copy to each construction professional it reasonably believes is responsible. The purchaser must make the dwelling available for inspection within 10 days of a request, and the seller must send a good faith written response within 60 days, which may include a notice of intent to repair or replace or an offer of money. During the notice and repair process, and for 30 days after repairs are substantially complete, limitations and repose periods, including A.R.S. §12-552, are tolled for the defects in the notice.

The insurance link is written into the statute. Under §12-1362(C), when the seller or a construction professional presents the notice to an insurer that issued it a policy covering defect liability, the insurer must treat it as a notice of claim subject to the policy terms and work cooperatively within the statutory time frames. Section 12-1363(G) also tolls the seller's indemnity and contribution claims against construction professionals until nine months after the purchaser serves its complaint.

Because the market narrows for residential work, the builder's choices usually come down to three structures: the builder's annual program with a per-project aggregate and residential-eligible trades, a project-specific policy for the builder and possibly its GC, or a residential wrap that enrolls the trades. Each depends on the subcontract program working, because claims that fall outside the builder's policy still test each trade's coverage and indemnity.

Before going to market, collect what underwriters ask for and what the statutes require: the plans and soils reports the builder will have to produce, the maintenance and warranty documents given at sale, the statutory notices in the sales contract, a log of every trade by phase with its insurance and endorsements, and a claims procedure that routes homeowner notices to the insurer the day they arrive. A submission that shows those controls tends to reach more carriers and produce terms that are easier to compare.