If a partial settlement is the first offer from the insurance company, decline it and demand more. You should never take the first offer from an insurance company on matters like this. Since the insurance company has no contract with *YOU*, you're not bound by any agreement terms between them and the builder. In the end, what insurance does not pay, you can (and should) sue the builder for. Seek legal advice on that from a legal professional though, as that's just my opinion.
As far as taxes go, this has nothing to do with taxes. The cost of fixing this will add to your cost basis in the property. But that won't matter tax-wise until the tax year you actually sell or otherwise dispose of the property.
