The Costliest Shortcut: How One Builder Lost Coverage by “Doing the Right Thing”

The Compliance Steps Every Contractor Must Follow to Protect Insurance Coverage

The recent lawsuit filed by Scottsdale Insurance against Matarozzi Pelsinger Builders is a wake‑up call for contractors everywhere. The case centers on a familiar instinct — a builder discovers a defect, wants to keep the homeowner happy, and jumps straight into repairs. But that simple decision triggered a major legal battle and may cost the builder its insurance coverage entirely. Scottsdale claims the builder moved ahead with repairs without insurer consent, violating the policy’s voluntary‑payment clause and putting all coverage at risk. [insuranceb...essmag.com]

Industry analysts warn that this “fix it now” instinct is one of the most common — and most financially devastating — mistakes contractors make. When a contractor takes action without formal notice, they risk carriers treating the repair as an unauthorized assumption of liability.
Experts further note that agreeing to repairs before alerting the carrier can instantly jeopardize coverage, even if the contractor believed they were doing the right thing. [insurancecurated.com

To help you avoid the same pitfalls, here are the five essential steps every contractor should follow the moment a defect is discovered:

1. STOP ALL WORK Immediately — No Promises, No Repairs

Your first instinct may be to fix the issue to maintain goodwill. But under most GL policies, taking action without carrier consent can void coverage. Scottsdale alleges exactly that — the builder agreed to repairs without permission, triggering a policy breach. [insuranceb...essmag.com]

2. Notify Your Broker and Insurance Carrier Before You Respond

Before you talk timelines, causes, or repair plans with the homeowner or subcontractor, you must put the carrier on notice. This ensures:

• You don’t violate voluntary‑payment exclusions
• The insurer has a chance to inspect the issue
• All next steps are compliant with your policy
  Industry experts emphasize that looping in your broker before you take any action is the safest way to protect coverage.

3. Document Everything Immediately and Thoroughly

Scottsdale also argues the builder knew or should have known about issues prior to the policy period, using that as grounds to deny coverage.
To avoid this: [insuranceb...essmag.com]

• Capture photos and videos
• Log dates defects were discovered
• Record all communication
• Store subcontractor reports and engineering findings

Thorough documentation helps prevent disputes about timelines, awareness, and responsibility.

4. Communicate Carefully With Property Owners

When emotions run high, homeowners often push for immediate answers. But that’s where many contractors get into trouble.
Industry insights warn that one uninformed statement, such as admitting fault or promising a repair, can be interpreted as accepting liability — and insurers may seize on that. [insurancecurated.com]

Use neutral language:

• “We’re reviewing the issue.”
• “We’ve notified the appropriate parties.”
• “We will follow the formal process required by our insurer.”

5. Train Your Team on Insurance Notice Requirements

A superintendent or PM promising a repair can create the same exposure as an owner doing it. Experts emphasize that a contractor’s “good guy” instinct may be honorable but financially catastrophic.

Every team member must know:

• Do not promise repairs
• Do not admit fault
• Notify leadership immediately
• Follow the insurance communication chain
  One misstep can jeopardize millions in coverage.

Need Help Building These Processes Into Your Business?

Many contractors know what they should do… but actually putting strong procedures in place is another story. That’s where Top O' Michigan Insurance Solutions comes in.

We help contractors:

• Build repeatable defect‑response workflows
• Standardize documentation across teams
• Ensure proper notice protocols are followed
• Reduce the risk of coverage disputes like the Scottsdale case illustrates
• Keep everything organized and accessible 24/7

If you’re unsure how to implement these steps — or if you want help creating a liability‑safe process — we’ll help you set everything up.

Related posts

• How Much Does Contractors Insurance Cost in Michigan?
• What Is Builders Risk Insurance & Do I Really Need It?
• From Overpaying to Savings: How We Transformed a Client's Insurance Program

Comments

There are currently no comments

New Comment