Section 4.44 Contractor Default Insurance

• Library: Construction Law 2016 Supp

XVI. (§4.44) Contractor Default Insurance

Contractor default insurance is a relatively new product designed to protect the policyholder from losses associated with the defaults of its subcontractors. Zurich North American was the first company to offer and remains the only viable carrier for the product. Hence, its policy terms provide the basis for this discussion. The stated objective of the policy is to provide coverage for the expenses incurred by the insured in fulfilling the defaulting subcontractor’s contractual obligations. These expenses include the costs of completing the subcontractor’s contractual obligations and the costs incurred in correcting defective or nonconforming work. The coverage is triggered by a subcontractor default in its performance under a covered subcontract.

The policy is marketed as a substitute for surety bonds. For instance, if a general contractor is insured...