Exclusions: Changing the rules in CD

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Policy exclusions bring even more complexity to the CD environment. Although these clauses are added to policies in an attempt to protect the insurer, carriers that do not fully understand the exclusions and their potential ramifications can encounter unnecessary litigation and resulting losses.

Common exclusions in CD policies include the following:

  • Exterior insulation and finishing systems (EIFS), or synthetic stucco. These multilayered exterior wall systems are meant to conserve energy. Unfortunately, the insulation is so good that moisture becomes trapped inside, causing wood rot and mold.
  • Toxic molds. These are organisms that grow when moisture combines with poor ventilation. Ironically, buildings are sometimes ventilated in order to cut energy costs. Claims arise from exposure to or inhalation of fungi. As such, claims can include bodily injury as well as property damage.
  • Earth movement. This includes injury or damage wholly or partially caused by landslides, mudflows, earthquakes, movement of fill, or any form of the earth rising, sinking, setting, eroding, tilting, or settling. In Colorado, soil issues and subsidence are big.
  • Damage to work performed by subcontractors on the general contractor's behalf.
  • Known injury or damage. This excludes coverage for potential losses because of a problem that the insured knew about before purchasing the policy.