The state of insurance in the state of California is miserable.

When we think of protecting our homes, events such as fire, fallen trees or other disasters defined as "acts of God" come to mind. Insurance companies figured out long ago that the risks associated with these events are worth taking.

Usually, when these infrequent events occur, damages are visible, definable and ultimately payable. Indeed, they tend to be obvious and, therefore, not subject to legal question. After all, has anyone ever filed a lawsuit against God? The Church, yes, but God?

There is, however, a risk associated with homes that California insurance companies have assessed to be too high. The risk is new construction defects on new homes and multifamily developments. Unlike the other events mentioned above, these losses are frequent, often invisible, often undefinable and, yet, still payable. Oh, how they are payable! In fact, like an insured motorist, the very presence of an insurance policy is what makes them payable.

Here's what happens: A California home, less that 10 years old, is nestled in a quaint development. That development likely has a homeowners' association comprised of all the residents in the subdivision. Somewhere along the line, one homeowner notices a problem, such as a roof leak or drainage issue. The homeowner tells other neighbors to determine if it's an isolated incident or if other homes have the same problem.

Meanwhile, a law firm offering a "no charge" inspection to assess any possible defects prior to the end of the 10-year construction defect limit contacts the association. The offer is, of course, perfect timing for the homeowner. The inspection offer is accepted for the development.

The homes are inspected and a report delivered to the law firm that, in turn, communicates the results to the expectant homeowners. Guess what? The original complaint is not an isolated event. Indeed, there are other construction issues and most, or even all, are legitimate. Now, the homeowners' association can contact the developer and arrange for the repairs, right? Wrong!

As a direct and legal consequence of the negligence of the developer, the homeowners have suffered damage to their homes, loss of interest, probable loss of personal property, loss of time, emotional distress, potential physical injury, loss of the use of their homes and are now entitled to legal fees.

That's correct, the lawyer doesn't arrange for the repairs. Rather, the lawyer files a justifiable lawsuit. There is little harm to anyone and a damage award is likely. After all, the developer is insured for such claims. The money is there. The suit is filed and delivered by an extremely courteous sheriff to the developer.

The developer, or general contractor, has likely received other such lawsuits. The general contractor's task is simple. Deliver the suit to the insurance company that provided the insurance on the construction development.

Running Scared

That's where we come in. The insurance company required that all subcontractors who performed work on the development have insurance that names their developer as additional insured. The subcontractors may number as many as 100 insured -- not just plumbers, but framers, roofers, electricians, etc.

You may have guessed that that insurance money just grew by the hundreds. And you'd be right. The developer's insurance company files a counter-suit against all the associated subcontractors and their insurance companies. Now it's time for the legal experts from each insurance company to take over.

A barrage of conference calls, depositions, onsite meetings and briefings, etc., is the norm. All of this action at a staggering amount of money per hour for countless attorneys. The costs for the insurance companies are mounting and the call for "settling this thing" is announced. And after much debate, the settlement is reached. Who gets how much is unclear, yet I can speculate who gets the most. Meanwhile, the roof still leaks.

While my story is a representation, it's not fiction. Indeed, lawsuits and counter-suits fill the filing cabinets of most general and subcontractors capable of performing their work.

As a result, the insurance applications for contractors started asking questions such as, "Do you subcontract on residential developments that have a homeowners' association?" Now, the questions have descended to, "Do you subcontract on residential homes in the state of California?" One could speculate the final question to read, "Do you subcontract on residential homes near the state of California?"

The result is that insurance companies are unwilling to extend policies to subcontractors who contract on California residential housing of any amount.

An insurance company will not know its costs for a one-year policy until the end of the 10 years. In other words, for the insurance company, a new home in California is a claim or lawsuit in waiting.

Furthermore, law firms have gone from being contacted by homeowners' associations to pursuing homeowners' associations, or now even individual homeowners.

Currently, policies for contractors are scarce, have more exclusions and are cancelable. Many good and decent employers are not getting the insurance they need to conduct business and are ceasing operations. A genuine tragedy.

So will a lawsuit ever be brought against God? Why bother? He doesn't have insurance.