.png)
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. [insurancebusinessmag.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. Industry observers 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 general liability policies, taking action without carrier consent can void coverage. Scottsdale alleges exactly that — the builder agreed to repairs without permission, triggering a policy breach. [insurancebusinessmag.com]
2. Notify Your Agent 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. Doing so protects your rights under the policy and lets the carrier guide how the claim is handled from the very start, rather than reacting after commitments have already been made.
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. [insurancebusinessmag.com]
To avoid that outcome, document the defect, the date it was discovered, and every related conversation as thoroughly as possible. 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 that acknowledges the concern without accepting responsibility — for example, letting the homeowner know you are looking into the issue and will follow up, rather than admitting fault or committing to a specific fix before the carrier is involved.
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. Industry analysts emphasize that a contractor's "good guy" instinct may be honorable but financially catastrophic.
Every team member must know not to promise repairs or admit fault, and to route any defect claim to management right away so the carrier can be notified before anyone responds.
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 turn these steps into a repeatable, coverage‑safe process — from carrier notification protocols to team training and documentation habits.
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.