8 Lessons Learned From 10,000 Structural Claims (Part 1)

Structural claims represent one of the greatest liabilities to builders. The good news is that an insurance-backed structural warranty can help manage this risk, protecting builders’ financial well-being and hard-earned reputation.

I’m Walt Keaveny, and I’m the Senior Director of Underwriting and Engineering for 2-10 Home Buyers Warranty. I have expertise in risk management with more than 35 years of experience in the engineering and home-building industries, with a focus on structural warranties, claims, and repairs. I have learned valuable lessons from over 10,000 structural claims and offer the following takeaways.

Home Building is Risky Business

It’s a call that every builder hates to receive: a homeowner with sheetrock cracks across walls; doors and windows jammed shut; buckled floors; siding, trim, and molding separation. Or worse, beams, roof structure, or garage door lintels on the verge of collapse.

A builder’s chances of experiencing structural claims are much higher than most believe and are about the same as experiencing a major household fire during a 10-year period.[1] About 25% of all US homes on expansive soils will experience some structural distress during their lifetime, and about 5% will experience major structural difficulties.[2]

With that risk in mind, here are four critical lessons I’ve learned from adjusting residential structural claims.

Lesson 1: The Foundation Is the Greatest Structural Liability

A great majority of structural claims are caused by movement of the foundation. Framing-related deficiencies are the next most prominent cause. Thus, the foundation should be the builder’s primary area of focus.

Lesson 2: Active Soils and Fill Material Are the Two Main Causes of Structural Claims

Foundation claims are caused by movement of soils that support the foundation. There are two types of soil that cause this movement: active soils and fill material.

Active soils—or expansive or swelling soils—cause more property damage in the US than all floods, earthquakes, hurricanes, and tornadoes combined.[3] Active soils contain clay that swells when wet and shrinks when dry, causing volume changes. This can force houses to bend and tilt, leading to distortion and damage.

Fill material, placed under the foundation, can contain voids like a sponge that close when subjected to the load of a foundation. This causes settlement.

Lesson 3: Most Structural Claims Are Reported 4–7 Years After the Sale of the Home

For a typical 10-year structural warranty term administered by 2-10, only about 30% of claims are received within the first 4 years after the sale. The remaining 70% are received after the 4^th year, with peak claims activity occurring in Years 4–7. Often, builders don’t adequately reserve funds for claims that long after the sale. Although total home–value losses are not common, structural claims are expensive and average about $70,000 to investigate and repair.

Lesson 4: The IRC and IBC Provide Essential Standards to Reduce the Risk of Structural Claims

Builders may be surprised to learn that from a construction standpoint, it is very important to comply with the International Residential Code (IRC) and applicable sections of the International Building Code (IBC), or other equivalent code. Compliance with code is imperative to reduce builder liability and is also critical in construction legal defense.

2-10 Can Help You Manage Structural Risks

Though the risks we’ve discussed can have devastating effects on your bottom line and reputation, there is a solution. A 2-10 insurance-backed structural warranty positions you to have a proactive solution to covered structural defects, which could help you avoid the negative consequences of unexpected structural issues.

No quality builder thinks they’ll have a structural issue—until they do. Having a plan for how you can address covered structural defects can help you protect your reputation, your bottom line, and your homeowners. For more than 40 years, 2-10 has been an industry leader in supporting our Builder Members with warranty administration, setting expectations with homeowners, and addressing covered structural defects.

Visit www.2-10.com/builder for more information about how 2-10 can help builders protect their profits, promote their quality, and plan for a successful future by controlling what’s behind them.

Stay tuned for Part II in this series, in which Walt will share the remaining four lessons learned from 10,000 structural claims.