Construction Defects - Casualty Actuarial Society施工缺陷保险精算学会.ppt

September 8, 2003 Ronald T. Kozlowski, FCAS, MAAA, Tillinghast - Towers Perrin September 13, 2004 Construction Defects - Background, Reserving Methodologies and Trends Ronald T. Kozlowski, FCAS, MAAA Construction Defects September 13, 2005 BACKGROUND California Population Growth and Housing Supply Shortage In the late 70s through early 90s, California experienced unprecedented population and housing growth CA population growth was twice the US population growth rate in many periods Demand for housing exceeded supply Construction of multi-family units (condos, townhomes) increased significantly Builders stepped up production unskilled construction labor “cut corners” - cheaper materials and built quicker less supervision California Litigation Ensues Aggressive plaintiff’s bar Success in early suits funded additional suits Unfavorable legal decisions (discussed later) Construction of multi-family units (condos, townhomes) encourages large cases multi-family units four times more likely to sue Homeowners associations sold on idea by aggressive lawyers potential suits against condo Board if Board fails to take action Spreads into other states California - Reducing Exposures Many carriers exited the market starting as early as 1992 Some carriers reduced exposure to “target classes” like residential contractors but continued to write commercial contractors and subcontractors Many carriers placed “known and continuing” endorsements or Montrose endorsements on policies beginning as early as 1996 standard ISO Form denies coverage for claims that were known prior to the policy period some carriers are even more restrictive, excluding claims first occurring prior to the policy period New multi-family units in California drop from 18,681 in 1994 to 2,945 in 1999 Today many contractors looking at self-insurance and captive options Types of Defects Many courts have recognized two primary categories of defects for which damages are recoverable: defects in design, workmanship