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Construction Insurance Bulletin


By June 1, 2011No Comments

In any industry, there will always be certain costs associated with doing business. However, construction firms should never consider construction deficits as part of these unavoidable costs. Construction deficits are an ever-growing problem in the construction industry, but are definitely not unsolvable. No problem can be solved without understanding why it’s occurring in the first place. Here are three of the main contributing factors:

1. Poor Site Selection. Many contractors, especially those in urban areas, have witnessed rapid growth spurts claim the majority of the highly-desirable sites. This leaves contractors choosing from what’s left and possibly choosing sites that aren’t exactly optimal for the construction.

2. Poor Soil Analysis. An adequate soil analysis should include collecting and testing soil samples for the presence of sinkholes, the presence of sand, and the degree of compaction. The overall purpose of soil analysis of a site is to make sure that the soil present will be able to support and bear the load of the expected construction project. Construction firms not doing such verifications are leaving themselves wide open for a number of legal issues.

3. Defects. Structural and material defects are also major contributors to deficits. For example, an improperly set foundation can result in the weight of the building not being supported correctly and can make the walls more likely to crack. A firm might also find trouble when they cut corners on materials, as this can lead to faulty construction.

The above three factors are the basis for construction lawsuits alleging negligence. The legal definition of negligence is a failure to use reasonable care or meet the recognized standard of care. To a construction firm, the reasonable care is in building a structure at the performance level expected of this type of work by the community and doing so in a professional manner. This doesn’t mean that a construction firm must warranty or guarantee that a construction project will be exactly perfect, but it does mean that a contractor must take the appropriate steps to ensure the absence of defects.

Taking reasonable care to ensure against defects sounds straightforward. However, contractors often find that the pressure to get a job done faster and cheaper leaves them in a vulnerable position as they might try to meet these goals by cutting corners, skipping vital checks, using cheaper and inferior materials, or using cheaper contractors with a questionable work ethic or history of inferior work.

Even if a General Contractors Liability policy is in place, contractors shouldn’t dismiss the seriousness of negligent claims. Depending on the particular project, a contractor proven negligent could face serious financial repercussions. Yes, the liability policy will cover physical damage to the property and any resulting loss of function, but insurers are minimizing their risk by adding exclusions for areas like mold damage, multi-layered wall systems, earth movement, and so on. Another problem is the delay between when the defect occurs and the resulting injury/damage, which leads insurers to question coverage. A liability policy written on a claims made basis will not provide coverage unless the claim is reported or made during the set policy period.

To counteract the above risks, contractors should set their standards and make sure that everyone involved with the project understands and agrees to the standards before ever starting a job. A quality control system should be used throughout the project to continuously monitor and inspect every aspect of the project – from whether or not standards are being met and fines for such deliberate failures -to- finding and correcting defects in a timely manner. Remember, defects should be handled as soon as possible and not be put off until they become a lawsuit. Contractors without a quality control system in place don’t have any reliable way to regulate exactly how workers are performing on the site. From a legal standpoint, showing that a formal quality control system was in place is also very beneficial if a lawsuit should happen to occur.