“Keeping the Faith. First-Party Property Insurance Extracontractual Liability Arising From Preferred Vendors”
Articles & Publications
In recent years, aggressive policyholders’ counsel have included claims for extracontractual liability arising out of vendors hired by property insurance companies as a way to maximize recoveries for their clients. The additional bad faith risk emerges from the typical first-party property insurance claim scenarios where either (1) the insured loss was repaired by an insurer-approved contractor or preferred vendor that the policyholder retains; or (2) when the insurer takes full control of the repair process and hires and supervises the work. When repairs go wrong, property insurers may find themselves faced with a lawsuit seeking compensation for the bad repair that extends beyond breach of the insurance contract.
In situations where the post-loss repair was ineffective or faulty, some policyholders have sought property insurance company extracontractual liability on the basis that the insurer became the “employer” of the vendor that did the repair work and, consequently, the insurer was the principal responsible for the vendor’s defective workmanship. Fortunately for property insurers, at least in situations where the policyholder has selected his own contractor, courts are reluctant to find liability against insurers on that basis because the vendors are deemed independent contractors and not employees or agents whose negligent or wrongful acts can be imputed to the insurance companies. In these situations, courts typically find that an insurance company does not have a duty to supervise independent contractors selected to perform repair work for policyholders’ losses.