Policies in California vary widely as to the level of protection they offer. Some of the pitfalls include:
Policies written with a “Manifestation Clause”
This clause generally states that coverage does not apply unless the damage “first manifests” during the policy period. These forms have varying descriptions, but most state that the damage must become apparently to someone before the policy expires. As construction defects often become apparent years after the job is completed, this clause would preclude coverage for most construction defect claims.
Policies written with a “Sunset Clause”
This clause limits the time a claim can be made to a specific number of years … generally 3-4 years after policy expiration. In California, a client can make a construction defect claim against you for 10 years. If the claim is made after the Sunset Clause expires, you will be left holding the bag and having to pay for your own lawyer to defend you and to pay any judgment awarded to the claimant.
These policies are normally issued for professional liability coverage and unfortunately, cannot be avoided for those involved with architecture or design work. You should avoid this form of coverage for your general liability insurance at all costs because once the policy expires, your period for making a claim expires also.
The person to guide you through these pitfalls is your trusted Insurance Broker. Make sure you have a conversation with him or her about what is covered and what is not covered. A list of the policy exclusions will help you weed out the good policies from the not so good ones. You may end up opting for a less comprehensive and therefore, less expensive policy, but at least you will know what you are getting for your premium dollar.