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Contractor’s Insurance May Still Be On The Hook For Damages That Occur Long After The Policy Period Expires

Contractor's insurance collection case study

It may be surprising to many to learn that a contractor’s insurance company can still be responsible for paying for damages that occur after the policy period expires. That is precisely what occurred in the case of Gustello v. AIG Specialty Insurance Company where the appellate court ruled that a retaining wall failure in 2010 could be covered under a Commercial General Liability (“CGL”) policy that expired in 2004.

Dispute At Issue: Retaining Wall Fails Years After Work Was Done Causing Damages

In Gustello, a subcontractor built a retaining wall that collapsed years later and caused substantial damage to a nearby residential lot. The homeowner sued the subcontractor and filed a lawsuit to enforce the judgment against the subcontractor’s insurance company (“AIG”).

The homeowner alleged that a latent defect occurred shortly after the retaining wall was built by the subcontractor. The homeowner offered expert testimony that this defect caused “continuous and progressive” damage that occurred during the policy coverage period which caused destabilization and led to the ultimate collapse of the wall. In response, AIG argued that the homeowner’s damages occurred long after the insurance policy had expired.

Appellate Court Rules That Damages May Be Covered Under The Insurance Policy

The trial court sided with AIG, but the appellate court overruled the trial court in favor of the homeowner because the homeowner had offered sufficient expert evidence that damage to the retaining wall had occurred during the policy coverage period. The appellate court ruled that the homeowner was entitled to a trial on the issue and sent the case back to the trial court for a jury trial.

Important Takeaways From The Court’s Ruling

This case demonstrates that an insurer may still be on the hook for damages from latent defects that begin during the policy coverage period but are not realized until years later. For this reason, it is always important to look at any insurance policies that may be applicable if you are faced with a claim for liability.

There are a lot of technical issues and expertise needed to defend against a lawsuit.  You would not do surgery on yourself, so do not do legal surgery on your own which could cause dire consequences. Instead, call an attorney who can help properly defend you. Trying to deal with the intricacies of a lawsuit by yourself is like doing surgery.

Ghassemian Law Group has very experienced attorneys who can help you or your company when you get sued.  Call us as soon as you are served with a lawsuit so we have a better chance of properly defending you and guiding your case in the right direction.

 1 Guastello v. AIG Specialty Insurance Company (2021) 61 Cal.App.5th 97.


This article is informational only and meant to provide guidance. It is not meant to be legal advice and it does not create an attorney-client relationship. For what to do in your specific situation, please consult with a qualified Construction Law attorney.


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