For EIFS contractors, acquiring general liability insurance continues to be difficult for many reasons.
In response, various contractor associations were attempting to secure insurance for their members by communicating with carriers and convincing them of the insurability of EIFS contractors.
“Some contractors were having some success others were having difficulty obtaining insurance,” says Stephan Klamke, executive director of the EIFS Industry Manufacturers Association. “Macon Lowe (CEO of Sto Corp. and current president of EIMA) and I felt it would be a good time to gather everybody, exchange success stories and come up with a unified effort.”
The summit included AWCI, CLAPCA, FWCCA, GLAPCA, the Chicago Plastering Institute, Minnesota Lath and Plastering, WWCCA, TLPCA, OPCMIA and NWCB. Nineteen people from these various associations showed up in Atlanta on Sept 6, 2002, to find a solution.
One of the main benefits from the meeting was the fact that all parties were positive and cooperative. Differences became irrelevant in the face of a critical threat to both the EIFS industry and the construction industry: lack of willing insurance carriers to cover EIFS contractors.
“I was pleased with the interest and commitment of various attendees in sharing their information,” Klamke says. “Everybody was committed to the end result of coming up with an insurance product for our respective members.”
Background of the caseFrom 1994 to 1999, general liability premiums were reduced by 43 percent and stable. Through 2001, the stock market was flourising.
After Sept. 11, the construction insurance market’s unprecedented prosperity boom was over and the reinsurance market was not available.
“Consequently, we found ourselves in the ‘surplus and excess’ market,” explains Klamke. “The insurance industry informed us of its concern with moisture intrusion litigation in EIFS construction. However, I made an informal survey of one of the Lexis-Nexis sites that chronicles moisture intrusion litigation.”
Klamke found an anomaly.
“I looked at 209 finalized activities over the last 15 months,” he continues. “Of those 209, 26 percent dealt with construction defects, defined as ‘so many defects, the carrier couldn’t point to one specific culprit.’ However, the defects were contained within three groups: plumbing 21 percent, roofing 18 percent and foundations 14 percent. Almost 80 percent of the construction defect litigation I researched dealt with those three areas.”
Klamke added those other categories representing defects claims were HVAC 9 percent, masonry 8 percent and flooding 2 percent. In other words, EIFS/plastering was not even a blip in the 209 cases Klamke examined. Why do insurance carriers single out EIFS?
“The insurance companies have no answer,” Klamke says. “In my opinion, EIFS and plastering is insignificant in the litigation. The numbers are right there. Everyone in the construction industry is having difficulty getting insurance. One more thing about the claims in my informal research: They are all in the residential sector.”
The gathering gave all the attendees a chance to hear what worked and what didn’t in other regions. Lowe agreed that it was an open and productive exchange of ideas.
“What I want everyone to know,” Lowe says, “is that everyone cooperated so well.”
The universality of the situation is obvious: Everyone gathered is facing the same thing. As Klamke mentioned, moisture intrusion is not an issue in commercial building and has never been a problem to compare with the amount of residential claims.
“EIMA outlined one solution in a white paper, ‘EIFS in Commercial Construction,’” Klamke says. “In commercial construction, you have contract documents that are extensive, and competent trained experts to bring expertise typical of commercial work. Contractors are licensed and there is supervision to make sure it is all executed. When that works, it works fine. In residential application, there are no checks and balances. The irony of the whole thing is that the entire wall cladding assembly is the integration of various components of the wall assembly itself, critical to the success of any construction project.”
The planOnce it was established that the gathered representatives of the various regions and associations faced a common foe, it was decided one component to the solution would be to establish a database of potential contractors that would go to insurance companies and convince them that EIFS was a viable and insurance-worthy business. Another component would be to provide actuarial data for insurance, risk/loss information, demonstrating that most contractors haven’t had a moisture-intrusion problem. If the problem was the system itself, universal flaws would have manifested 20 years ago and they have not. The next step will be to gather the information from various contractors so they can go to a carrier and show that they have this body of potential customers who have provided this amount of documentation that fears are unfounded, that this is a good industry and product, and the carrier ought to entertain insuring it.
With this plan outlined, the practical approach will be for Klamke and company to come up with a form to be distributed to various contractors eliciting the aforementioned information. This information will be offered up through a third party that will gather and tabulate the information. This information will result in the justification and documentation necessary to go to the insurance companies.
For some insurance carriers, EIFS was among the most profitable products ever carried and they chose to get out of it anyway. Although this may seem illogical on its face, insurance companies are in business like everyone else, to make money. The industry is facing medical malpractice, construction litigation and claims on many fronts. The insurance world has a lot on its plate. The focus of this summit group is to make sure its members and people in the EIFS industry get a policy that allows them to do the kind of work done in the past.
“We’ve worked closely with large carriers, such as State Farm, Prudential, and made presentations at both organizations’ annual meetings,” Klamke explains. “Universally, they know it’s not EIFS. They know problems exists in all claddings. The American Society of Home Inspectors and others found there is moisture intrusion under everything, and as mentioned, my study’s failure was attributed 80 percent to roofs, plumbing and foundation.”
With all these positive facts regarding EIFS, many hope a carrier has the epiphany to monopolize the EIFS market due to the enormous lack of carriers covering it. With large contractors with no claim in 20 years still not allowed to get insurance on EIFS, a golden opportunity exists for brave carriers. Some large operations are not even offering homeowners insurance anymore. The goal is that if there were a business opportunity, it would be available to all. All EIFS contractors are in the same boat. It is more effectively communicated from the entire group rather than one regional group. Seattle is a different market than Phoenix but the core issue is the same: the availability of a policy.
“EIFS did not come as far and as fast as it has in last 20 years because installers weren’t doing it right,” Klamke says. “A product installed by good, decent, hard-working contractors who do a good job is worth something to somebody. Down the line, we may see similar groups, such as plumbers, come up with a solution to some cohesive cause. For example, EIMA circulated the minutes of the NAHB meeting it held on general liability. Had you dropped all reference to NAHB and inserted EIFS contractors, the dialogue would have been the same! It’s everyone’s problem.”
Klamke reiterates that all gathered shared the same spirit of cooperation.
“I was not expecting friction,” he says. “I’ve been here since April of 1997, and worked to maintain relationships with these contractor groups. Everyone came open-minded and prepared to participate. The end result is a general understanding that everyone in the room is bigger than one group.”
The result and intended goal of this summit is first the gathering of information demonstrating that these associations and contractors want to prove this industry to carriers. Contractors must continue to take pride in workmanship and do the job they are capable of doing, do it right and ultimately, contractors will convince the insurance people of viability of the EIFS industry.
“Everyone must do his part and make sure this product is represented appropriately,” Klamke adds. “This is not an EIFS or plastering problem, it’s an insurance problem. On our end, it’s a process problem not a product problem. The core issue is that there is a disconnect between historical product performance and the current perception of what will happen. We don’t need to fix anything but simply reestablish faith in this product.” W&C
Consulting with wallsA third-party opinion on why EIFS may be regarded with suspicion by the insurance industry was provided by Marc Weissbach, a principal of Israel Berger and Associates Inc., of N.Y., an exterior wall and roof consultant firm.
“I don’t think people intentionally ruin projects,” he says. “Sometimes, inexperienced people reach levels where they can’t perform, while the more experienced people are involved in the business end of things so you don’t have him checking jobs. With EIFS, it’s not a material failure. All failure is 95-percent installation related. I think the key areas where people fail is the value engineering. EIFS is versatile and cheap but it can be easily screwed up. Once in value engineering mode, one can lose sight of trying to get the details right and focus on saving money.
“For example, they select EIFS but then they go and say ‘why don’t we use a different exterior sheathing, do we need paper or go to a different type of material, instead of G90 stud do we use G60,’ and the original goal was that EIFS was picked to accomplish a design, not cheapen the project. It is reasonable to value engineer but one must maintain focus.
“In Ohio, I saw galvanized steel angles selected, the most expensive for brick relieving, but it had the most inexpensive flashing. This represents an inconsistent thought process. Sometimes, an architect at some point no longer has control over every product submitted, words can lead someone down the wrong path, will propose a product he claims as equal but it’s not as good. Build as quickly, well and inexpensively as you can is unfortunately often the motto.”
Weissbach does not believe good intentions are the problem but communication.
“I don’t believe that the average manufacturer or contractor is vindictive,” he continues. “When manufacturers are made aware of problems they move to correct them. However, they never do recalls in this industry. There are hundreds of leaks in NYC, mold, etc., long-term leakage. Since it’s not sensational, you don’t hear about it but you hear about a crane crashing.”
He also weighed in on the issue of mold and insurance.
“Mold and mildew form for a number of reasons but mainly because moisture is trapped in exterior wall components. What’s unfair to contractors is it also has to do with occupants’ habits in a space. People need to circulate air. Perhaps it is a problem ... it certainly is a problem to the lawyers! The lawyers understand how to work these situations and insurance companies maybe ought to protect their business by monitoring work better, having specialists that understand these things, have better defenses in lawsuits.
“For example, you bring a lawsuit to a GC over leaks. The insurance carrier says fine, suing us for a couple mil, the policy covers that damage up to 10 mil. The insurance company may not defend itself because it doesn’t think it’ll get tagged with that claim. It may wait through depositions, may wait too long to get someone involved to protect its interest. Insurance companies should get experts in lawsuits. They could get specialists. They are generalists. Why not on a big building, have someone check the quality of construction, the compliance with shop drawings? If everyone becomes proactive, we may not always need to defend ourselves.”
As with the EIFS summit meeting, Weissbach believes salvation is in teamwork amongst all the players in the construction industry.
“We need to investigate and research detailing, the materials that we select, evolve and use new materials when we can—but only when we know what we’re doing,” he says. “In the airline industry, a plane crash causes major investigations. The responsible airline will tell the entire industry what it learned from the mistake and every manufacturer learns what went wrong. In the construction industry, it doesn’t happen, it’s all word of mouth. Many times in a legal case, a settlement does not allow people to disclose problems.”