Faulty construction - sue insurance/builder?

[Yuvaraj Vimawala]

I have a 3 bed 2 bath (1 story) KB home rental property in TX. Recently had couple of plumbing issues where the toilets were not flushing. First time, got the sewer lines cleared in the yard - spent $2500. Then again, toilets kept rocking. A trusted plumber goes out there and starts digging to find the issue. Turns out the builder has a piece of rebar going through the main sewer line. Sewage has been seeping into the ground underneath the flooring for several months. Insurance wont cover it because it is "pre-existing condition" or "faulty construction". The repair and mold remediation job is $20K. 

Any advice on what is the best course of action? 

• Sell property at deep discount
• Spent $20k and suck it up 
• Sue Builder 
• Sue insurance 

[Russell Brazil]

Many new construction homes come with a warranty. 1 year anything, 2 year mechanicals and 10 year structural is pretty common.