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Construction Insurance Bulletin


By March 1, 2014No Comments

Before taking calculus, it’s probably a good idea to define your terms. The same principle applies if your business faces a construction defect claim.

Insurance experts define a “construction defect” as a failure of a structure to perform as expected in a way that causes harm to the work itself and/or other property or work due to faulty design, workmanship, and building products or materials.

Depending on the situation, a construction defect claim might involve allegations of damage (physical injury and/or damages (monetary loss from failure to perform properly). These lawsuits often involve “completed operations” claims under the commercial general liability policies of developers and contractor or errors & omissions claims against design and other professionals. Manufacturers and others in the stream of commerce are also vulnerable to product liability claims.

Construction defect litigation often arises from business disputes –for example, a general contractor might refuse to pay a sub, alleging that its work was defective – or from a building owner’s claim that damage to his property from a hurricane or earthquake was due in part to construction that failed to meet specifications above and beyond the minimum standards required by code. A number of such suits were filed in the wake of Hurricane Sandy, which devastated several Mid-Atlantic states in October of 2012, causing up to $75 billion worth of damage.

What’s more, construction defects can remain latent for extended periods. Claims are often made after a routine inspection of a building or home (for example, by a mortgage lender) uncovers shoddy work. Depending on the state, the statute of limitations for filing a lawsuit might not expire for 10 to 15 years after completion of a project.

To learn how you can protect your business against the threat of construction defect lawsuits, just give us a call.