The 411 on Construction Defects
Did you know that construction defects are one of the top causes for construction litigation? Construction defects are also referred to as “latent defects” and as such they take many years to manifest. Because of the latency nature of these claims, the ensuing suits are often the most complex, not to mention the most costly. When involved in this type of construction litigation you’ll need to obtain an attorney who’s an expert in the field of construction defect and let’s face it, that’s not cheap.
According to the International Risk Management Institute, construction defect is defined as “a deficiency in the design or construction of a building or structure resulting from a failure to design or construct in a reasonably workmanlike manner, and/or in accordance with a buyer's reasonable expectation.” Basically anything from poor workmanship to defective building materials/products can be considered a construction defect.
The most common examples of construction which can lead to construction defect litigation are:
- Building envelope
- Landscaping/soil settlement
Courts have varying interpretations on how – and if – your insurance coverage will be triggered. Coverage under a general liability policy is triggered by an unforeseen accident that leads to bodily injury or property damage. In some jurisdictions, the courts have deemed construction defects to not be property damage. Therefore coverage won’t be found under the general liability policy.
A direct result of the construction defect mess – and making things even more difficult – is that most traditional insurance carriers have completely removed themselves from the residential construction marketplace. They do this by not writing this class of business. And also by placing exclusions for residential construction and/or multi-family (i.e. condos, townhomes) construction under the general liability policy leaving you, or those working for you, completely exposed. There are insurance carriers who are currently writing policies for faulty workmanship, however, they exclude coverage for residential work.
Some construction defect exclusions are:
- Synthetic stucco (EIFS)
- Soil movement
- Fungus, mold, mildew, property damage
- Absolute pollution
- Product and completed operations
- Damage to your work performed by subcontractors on your behalf
Do you know your state’s position on what constitutes an “occurrence” with regard to construction defect? Do you have any of those exclusions on your policy? It’s important to work with an insurance broker who’s a specialist in the construction industry. Work together to review policy limits, exclusions and coverage forms to ensure you’re adequately protecting yourself to help minimize any gaps in coverage. Chat with us for more information!
- No Need to Self Insure Your Faulty Workmanship
- General Liability Webinar Replay
- The General Liability Rubik's Cube for Residential Contractors
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