Contractor and Insurance: Protection From Construction Defects

A Word to the Wise about Construction Defects: What You Can Do to Protect Your Business

Contractor Insurance – Possibly no two words strike more fear in the hearts of architects, engineers, and contractors than “construction defect.” A contractor insurance claim for a construction defect can cost astronomical amounts to correct and defend. And then there’s the damage to your reputation and its impact on your future opportunities for work. It’s enough to break a business.

As a contractor, you understand the importance of protecting your business. But do you have the right insurance coverage in place to guard against construction defects? In the fast-paced world of construction, mistakes and defects can happen, even to the most experienced professionals. That’s why contractor insurance is essential to safeguard your company from potential financial losses and legal liabilities.

Whether it’s faulty workmanship, design errors, material defects, or property damage, construction defects can lead to costly lawsuits and reputational damage. Having the right insurance coverage not only provides financial protection, but it also demonstrates your commitment to delivering quality work and fulfilling your contractual obligations.

At AmeriAgency, we understand the unique risks faced by contractors in the construction industry. Our tailored contractor insurance policies offer comprehensive coverage for construction defects, ensuring that you have the necessary protection when it matters most. With our expertise and industry knowledge, you can focus on what you do best – building and delivering exceptional projects – while we take care of your insurance needs.

Don’t let construction defects derail your business. Trust [Company Name] to provide the insurance solutions you need to stay protected and successful in the competitive construction industry. Contact us today to learn more about our contractor insurance options.

Common Construction Defects and Their Consequences

Construction defects can come in various forms and have serious consequences for contractors. One common type of defect is faulty workmanship, which occurs when a contractor fails to meet the expected standards of quality in their work. This can include issues such as poor installation, improper techniques, or shoddy craftsmanship. Faulty workmanship can lead to structural problems, leaks, and other issues that compromise the integrity of the building.

Another type of construction defect is design errors. These occur when the plans and specifications provided to the contractor contain mistakes or inaccuracies. Design errors can result in building code violations, safety hazards, and functional problems. Contractors may be held responsible for rectifying these errors, which can be time-consuming and costly.

Material defects are another common issue in construction. This can include using substandard or defective materials that do not meet the required standards or specifications. Material defects can lead to premature wear and tear, product failures, and safety hazards. Contractors may be held liable for the consequences of using faulty materials, including the costs of replacement and any resulting damage.

Property damage is yet another potential consequence of construction defects. During the construction process, neighboring properties can be damaged due to negligence, accidents, or the failure to implement proper safety measures. Property damage claims can result in significant financial losses and legal liabilities for contractors. Having the right insurance coverage can help mitigate these risks and protect your business from the financial fallout of construction defects.

Looking for protection from construction defects? Look no further. In this article, we will explore the vital relationship between contractors and insurance when it comes to safeguarding your construction project.

When embarking on a construction project, defects can pose a significant risk. Whether it’s faulty workmanship, design flaws, or material defects, the financial and reputational consequences can be devastating. That’s where contractors and insurance play a crucial role.

Contractors, as licensed professionals, are responsible for ensuring that the work they perform meets industry standards and complies with local building codes. However, even the most experienced contractors are not immune to construction defects. That’s why having adequate insurance protection is essential.

Insurance provides a safety net by covering the costs associated with construction defects, such as repairs, legal expenses, and potential compensation claims. It offers peace of mind to both contractors and their clients, mitigating the financial risks and uncertainties that come with construction projects.

In this article, we will delve into the different types of insurance coverage available to contractors, the benefits they offer, and how they can protect you from the potentially devastating effects of construction defects. Don’t leave your construction project vulnerable; ensure you have the right contractor and insurance protection in place.

Understanding construction defects

Construction defects can have far-reaching consequences for both contractors and project owners. These defects can occur due to various reasons, including faulty workmanship, design flaws, or material defects. They can compromise the integrity of the structure, affect its functionality, and even lead to safety hazards.

Common construction defects include foundation issues, plumbing and electrical problems, water intrusion, poor insulation, and structural deficiencies. These defects can arise during any phase of the construction process, from design and planning to construction and post-construction.

The financial and reputational implications of construction defects can be severe. They can result in costly repairs, delays in project completion, and even legal disputes. Therefore, it is crucial to address these issues proactively and have the right measures in place to mitigate the risks associated with construction defects.

Importance of contractor insurance

Contractors, as licensed professionals, have a responsibility to ensure that the work they perform meets industry standards and complies with local building codes. However, even the most experienced contractors are not immune to construction defects. That’s where contractor insurance plays a crucial role.

Contractor insurance provides a safety net by covering the costs associated with construction defects. It offers protection against potential financial losses, including repair expenses, legal fees, and compensation claims. By having adequate insurance coverage, contractors can protect their businesses and reputation while providing peace of mind to their clients.

For project owners, contractor insurance provides reassurance that they will not bear the financial burden of construction defects. It ensures that there is a source of compensation available in case something goes wrong during the construction process. This protection is especially important for large-scale projects where the potential risks and financial stakes are higher.

Types of contractor insurance

There are several types of insurance coverage available to contractors, each serving a specific purpose in protecting against construction defects. Here are some of the most common types of contractor insurance:

General Liability Insurance: This insurance provides coverage for bodily injury, property damage, and personal injury claims. It protects contractors from liabilities arising from accidents or injuries that occur on the construction site. General liability insurance also covers damage caused by the contractor’s work, such as property damage resulting from faulty construction.

Professional Liability Insurance: Also known as errors and omissions insurance, professional liability insurance protects contractors against claims of negligence, errors, or omissions in their professional services. It covers damages resulting from design flaws, inaccurate advice, or failure to meet industry standards. Professional liability insurance is particularly important for contractors involved in design-build projects or those providing design services.

Builder’s Risk Insurance: Builder’s risk insurance provides coverage for property damage or loss during the construction process. It protects contractors against risks such as fire, theft, vandalism, and natural disasters. This type of insurance typically covers the structure, materials, equipment, and tools involved in the construction project.

Workers’ Compensation Insurance: Workers’ compensation insurance is essential for contractors who employ workers. It provides coverage for medical expenses, lost wages, and rehabilitation costs if a worker is injured or becomes ill on the job. Workers’ compensation insurance not only protects workers but also shields contractors from potential liability for workplace injuries.

Contractor’s Equipment Insurance: This insurance covers the contractor’s equipment and tools against theft, damage, or loss. It ensures that contractors can replace or repair their equipment promptly, minimizing project delays and financial setbacks.

Having a comprehensive insurance portfolio that includes these types of coverage can help contractors mitigate the risks associated with construction defects. It is essential to consult with an insurance professional to determine the specific insurance needs based on the nature and scale of the construction projects.

Common construction defects and their consequences

Construction defects can manifest in various forms, each with its own set of consequences. Here are some common construction defects and their potential impacts:

Foundation Issues: Foundation problems, such as cracks, settling, or shifting, can compromise the stability and structural integrity of a building. These defects can lead to uneven floors, sloping walls, and even collapse in severe cases.

Plumbing and Electrical Problems: Faulty plumbing and electrical systems can cause leaks, water damage, electrical failures, and safety hazards. These defects can result in costly repairs, disruptions to daily operations, and potential risks to occupants.

Water Intrusion: Improper waterproofing and inadequate drainage systems can lead to water intrusion, causing mold growth, rot, and structural damage. Water intrusion can also affect the indoor air quality, leading to health issues for occupants.

Poor Insulation: Inadequate insulation can result in energy inefficiency, uncomfortable indoor temperatures, and increased utility costs. It can also contribute to moisture problems and mold growth.

Structural Deficiencies: Structural defects, such as inadequate framing, weak load-bearing walls, or improper connections, can compromise the overall stability of a building. These defects can pose safety risks to occupants and may require extensive repairs or even demolition.

The consequences of construction defects can be significant, both financially and legally. They can lead to costly repairs, delays in project completion, diminished property value, and potential lawsuits. Therefore, it is crucial for contractors to have the right insurance coverage to protect against these risks.

How contractor insurance protects against construction defects

Contractor insurance acts as a safeguard against the financial implications of construction defects. Here’s how insurance coverage can protect contractors and project owners:

Coverage for Repair Expenses: In the event of a construction defect, insurance can cover the costs associated with repairs or remediation. This coverage ensures that contractors can rectify the issue promptly without incurring substantial out-of-pocket expenses.

Protection against Legal Expenses: Construction defects can often lead to legal disputes and litigation. Insurance coverage can help contractors navigate these legal complexities by covering legal fees, court costs, and settlements if necessary. It provides financial support to defend against claims and protect the contractor’s reputation.

Compensation for Damages: Construction defects can result in financial losses for project owners, including property damage, loss of use, and diminished value. Contractor insurance can provide compensation to project owners for these damages, alleviating their financial burdens and ensuring a fair resolution.

Risk Mitigation and Due Diligence: Having insurance coverage demonstrates a contractor’s commitment to risk management and due diligence. It reassures project owners that the contractor is financially responsible and has taken steps to protect their interests. This can enhance the contractor’s reputation and increase their chances of securing future projects.

By having the right insurance coverage in place, contractors can focus on delivering quality workmanship and meeting project objectives, knowing that they have a safety net against unforeseen circumstances. Similarly, project owners can proceed with confidence, knowing that they are protected from the financial risks associated with construction defects.

Steps to take when facing construction defects

Discovering construction defects can be a stressful and challenging situation for both contractors and project owners. Here are some steps to take when facing construction defects:

Document the Defects: It is crucial to thoroughly document the construction defects, including photographs, written descriptions, and any relevant correspondence. This documentation will serve as evidence in potential insurance claims or legal disputes.

Notify the Contractor: Inform the contractor responsible for the construction defects promptly. Provide them with a written notice outlining the specific issues and requesting corrective action. Keep a record of all communication with the contractor.

Consult a Professional: Seek advice from a construction professional, such as an architect, engineer, or construction defect consultant. They can assess the defects, provide expert opinions, and help determine the necessary remedial actions.

Review Insurance Coverage: Review the contractor’s insurance policy to understand the extent of coverage for construction defects. Consult with your insurance provider to initiate a claim if necessary. Provide them with all relevant documentation and information.

Mediation or Legal Action: If the contractor fails to address the construction defects adequately, consider alternative dispute resolution methods, such as mediation or arbitration. If these methods fail, legal action may be necessary to seek compensation for damages.

It is essential to consult with legal and construction professionals throughout this process to ensure that your rights are protected and that you follow the appropriate legal procedures.

Tips for selecting a contractor with adequate insurance

When hiring a contractor for your construction project, it is crucial to ensure that they have adequate insurance coverage. Here are some tips to help you select a contractor with the right insurance:

Verify Insurance Coverage: Request proof of insurance from the contractor and verify the coverage with their insurance provider. Ensure that the coverage includes the necessary types of insurance for your project.

Check Policy Limits: Review the policy limits to ensure that they are sufficient to cover potential damages or claims related to construction defects. The policy limits should align with the scale and complexity of your project.

Research the Insurance Provider: Conduct research on the contractor’s insurance provider to ensure that they have a reputable track record. Look for reviews, ratings, and any information regarding their claims handling process.

Request Additional Insured Endorsement: Consider requesting an additional insured endorsement on the contractor’s insurance policy. This endorsement extends coverage to you as the project owner, providing an extra layer of protection.

Consult with an Insurance Professional: If you are unfamiliar with insurance policies and coverage requirements, consult with an insurance professional. They can help you navigate the complexities of contractor insurance and ensure that you make an informed decision.

Taking these steps will help you select a contractor who is financially responsible and adequately protected, minimizing the risks associated with construction defects.

How to file a claim with contractor insurance

If you encounter construction defects and need to file a claim with the contractor’s insurance, follow these general steps:

Gather Documentation: Collect all relevant documentation, including photographs, written descriptions, invoices, contracts, and any correspondence related to the construction defects. This documentation will support your claim.

Notify the Insurance Provider: Contact the contractor’s insurance provider to initiate the claims process. Provide them with a detailed description of the construction defects, supporting documentation, and any other information they may require.

Work with the Insurance Adjuster: The insurance provider will assign an adjuster to assess the claim. Cooperate with the adjuster, providing them with access to the construction site, documentation, and any other necessary information.

Obtain Repair Estimates: Obtain repair estimates from reputable contractors or construction professionals. These estimates will help determine the extent of damages and the associated costs.

Negotiate and Settle: Work with the insurance provider to negotiate a fair settlement. This may involve discussions, negotiations, and potential compromises. Once a settlement is reached, ensure that all terms are documented in writing.

It is crucial to consult with legal professionals during the claims process to ensure that your rights are protected and that you receive fair compensation for the damages incurred.

Contractor insurance and legal implications

Construction defects can lead to legal disputes, and contractor insurance plays a significant role in mitigating the legal implications. Here are some legal considerations related to contractor insurance:

Indemnity and Hold Harmless Clauses: Indemnity and hold harmless clauses are commonly included in construction contracts. These clauses allocate risks and liabilities between the parties involved in the construction project. Contractor insurance can provide the necessary financial backing to fulfill these contractual obligations.

Subrogation: Subrogation is the right of the insurance provider to pursue legal action against responsible parties to recover the amount paid out in claims. Contractor insurance can protect contractors from subrogation claims by ensuring that the insurance provider assumes the responsibility for legal actions related to construction defects.

Statute of Limitations: Each jurisdiction has a statute of limitations that sets a time limit for filing legal claims related to construction defects. Contractor insurance can provide the necessary financial support to address claims within the required timeframe.

Risk Transfer: Contractor insurance allows for the transfer of certain risks associated with construction defects from the contractor to the insurance provider. This transfer of risk can protect contractors from potential financial losses and legal liabilities.

Navigating the legal implications of construction defects requires a thorough understanding of the contractual agreements, insurance policies, and applicable laws. It is advisable to consult with legal professionals specializing in construction law to ensure compliance and protect your interests.

Conclusion: Importance of contractor insurance in protecting against construction defects

Construction projects come with inherent risks, including the potential for construction defects. These defects can have devastating consequences, both financially and legally. That’s why the relationship between contractors and insurance is vital in protecting against these risks.

Contractor insurance provides a safety net by covering the costs associated with construction defects, such as repairs, legal expenses, and potential compensation claims. It offers peace of mind to both contractors and project owners, mitigating the financial risks and uncertainties that come with construction projects.

By understanding the different types of insurance coverage available, the potential consequences of construction defects, and the steps to take when facing these issues, contractors and project owners can ensure that they have the right protection in place.

When selecting a contractor, it is crucial to verify their insurance coverage, review policy limits, and consult with insurance professionals if needed. In the event of construction defects, filing a claim with the contractor’s insurance requires proper documentation, negotiation, and potentially legal assistance.

Ultimately, contractor insurance is a crucial component of risk management in the construction industry. It allows contractors to focus on delivering quality workmanship, helps project owners proceed with confidence, and ensures that both parties are protected from the potentially devastating effects of construction defects. So, don’t leave your construction project vulnerable; ensure you have the right contractor and insurance protection in place.

Importance of Contractor Insurance in Protecting Against Construction Defects

Contractor insurance plays a vital role in protecting your business from the financial and legal consequences of construction defects. Without adequate insurance coverage, contractors may be personally liable for the costs of rectifying defects, defending against lawsuits, and paying damages. This can have a devastating impact on a contractor’s finances and reputation.

Having the right insurance coverage demonstrates your commitment to delivering quality work and fulfilling your contractual obligations. It gives your clients peace of mind, knowing that they are protected in the event of construction defects. Insurance coverage can also help you secure more contracts and compete effectively in the construction industry, where clients often require evidence of insurance before entering into agreements.

Contractor insurance provides financial protection by covering the costs of legal defense, settlements, and judgments in the event of construction defect claims. It can also provide coverage for property damage, bodily injury, and other liabilities that may arise during the course of construction projects. With the right insurance policy in place, contractors can focus on their work, knowing that they are protected against unforeseen risks and potential financial losses.

Types of Contractor Insurance Policies

There are several types of insurance policies that contractors should consider to protect against construction defects and related risks. These policies can be customized to meet the specific needs of contractors and the nature of their projects. Here are some of the most common types of contractor insurance:

General Liability Insurance: This policy provides coverage for bodily injury, property damage, and personal injury claims arising from construction activities. It can cover legal defense costs, settlements, and judgments in the event of third-party claims against the contractor.

Professional Liability Insurance: Also known as errors and omissions insurance, professional liability insurance covers claims arising from design errors, professional negligence, or failure to meet professional standards. It can help protect contractors against claims related to faulty designs, inadequate supervision, or other professional mistakes.

Builder’s Risk Insurance: Builder’s risk insurance provides coverage for damage to a construction project during the course of construction. It can cover the costs of repairs or replacement of damaged property, including materials and equipment. Builder’s risk insurance can also protect against losses due to theft, vandalism, and other risks.

Workers’ Compensation Insurance: Workers’ compensation insurance is essential for contractors who have employees. It provides coverage for medical expenses, lost wages, and rehabilitation costs for employees who are injured or become ill on the job. Workers’ compensation insurance also protects contractors from potential lawsuits filed by injured employees.

Commercial Auto Insurance: Contractors who use vehicles for business purposes should have commercial auto insurance. This coverage protects against liability claims and property damage resulting from accidents involving company vehicles. It can also cover the costs of repairing or replacing damaged vehicles.

Umbrella Insurance: Umbrella insurance provides additional liability coverage beyond the limits of other insurance policies. It can provide an extra layer of protection in the event that a claim exceeds the limits of primary insurance coverage. Umbrella insurance can be particularly beneficial for contractors who work on large projects with higher potential risks.

Each of these insurance policies serves a specific purpose and can be tailored to meet the unique needs of contractors. By working with an experienced insurance provider, contractors can ensure that they have the right combination of policies to protect against construction defects and other risks associated with their work.

Factors to Consider When Choosing Contractor Insurance

When it comes to choosing contractor insurance, there are several factors to consider to ensure you have the right coverage for your specific needs. Here are some key considerations:

Coverage Types: It’s important to understand the different types of coverage available for construction defects. Some common coverage options include general liability insurance, professional liability insurance, and builder’s risk insurance. General liability insurance provides coverage for bodily injury, property damage, and personal injury claims arising from your work. Professional liability insurance, also known as errors and omissions insurance, protects against claims related to professional negligence or mistakes in design or specifications. Builder’s risk insurance covers damage to the construction project during the course of construction.

Policy Limits: Check the policy limits to ensure they are adequate to cover potential losses. Construction defect claims can be costly, so it’s crucial to have sufficient coverage limits to protect your business. Consider factors such as the size and complexity of your projects, the potential for property damage or bodily injury, and the value of the completed project.

Exclusions and Endorsements: Review the policy exclusions and endorsements to understand what is covered and what is not. Some policies may have exclusions for certain types of defects or specific work performed. It’s important to ensure that the policy covers the types of defects most commonly associated with your line of work. Additionally, consider any endorsements or optional coverages that may be available to enhance your protection.

Claims Handling: Evaluate the insurer’s reputation for handling claims. Construction defect claims can be complex and time-consuming, so it’s important to choose an insurer with a track record of efficiently and effectively handling claims. Look for insurers that have experience in the construction industry and a proven claims management process.

Cost: While cost is an important consideration, it should not be the sole determining factor. Cheaper policies may provide less coverage or have higher deductibles, which could leave you exposed to significant financial risk. It’s important to strike a balance between cost and coverage to ensure you have adequate protection at a reasonable price.

Taking the time to carefully consider these factors will help you choose the right contractor insurance policy that meets your specific needs and provides the necessary protection against construction defects.

Steps to Take If a Construction Defect Occurs

Despite your best efforts to prevent construction defects, they can still occur. When faced with a construction defect, it’s important to take the following steps to protect your business and minimize potential liabilities:

Document the Defect: As soon as you become aware of a construction defect, document it thoroughly. Take photographs, gather any relevant documents or records, and make detailed notes describing the defect. This documentation will be crucial in supporting your claim and providing evidence of the defect.

Notify the Parties Involved: Notify all relevant parties involved in the project, including the property owner, subcontractors, and suppliers. Promptly informing them of the defect allows for quicker resolution and helps establish a paper trail of communication. It’s essential to communicate in writing to have a record of the notification.

Consult Legal Counsel: Construction defect claims can be legally complex, involving multiple parties and potential liabilities. It’s important to consult with an experienced construction defect attorney who can guide you through the legal process and protect your rights. They can help assess the potential legal ramifications, review your insurance coverage, and advise on the best course of action.

Engage in Mediation or Arbitration: In many cases, construction defect claims can be resolved through mediation or arbitration instead of going to court. These alternative dispute resolution methods can be faster and less costly than litigation. Engaging in mediation or arbitration allows all parties to negotiate a resolution and potentially avoid a lengthy and expensive court battle.

Review Your Insurance Coverage: Contact your insurance provider to report the construction defect and initiate the claims process. Provide them with all the relevant documentation and information to support your claim. Your insurance policy will outline the specific steps and requirements for filing a claim, so it’s important to follow them carefully.

By following these steps, you can take proactive measures to address a construction defect and protect your business from potential financial losses and legal liabilities.

Case Studies: Real-Life Examples of Construction Defect Claims

To illustrate the importance of contractor insurance in protecting against construction defects, let’s examine a few real-life examples of construction defect claims and how insurance coverage played a role in resolving them:

Case Study 1: Faulty Workmanship: A contractor was hired to renovate a residential property. After completion, it was discovered that the newly installed plumbing system had multiple leaks, leading to water damage and mold growth. The property owner filed a construction defect claim against the contractor. Fortunately, the contractor had general liability insurance, which covered the cost of repairing the plumbing system, removing the mold, and reimbursing the property owner for the damage.

Case Study 2: Design Errors: An architectural firm was hired to design a commercial building. During construction, it was discovered that the design specifications for the structural components were flawed, leading to significant structural deficiencies. The property owner filed a construction defect claim against the architect. The architect had professional liability insurance, which covered the cost of redesigning and reconstructing the affected areas, as well as compensating the property owner for the inconvenience and additional expenses incurred.

Case Study 3: Material Defects: A contractor was responsible for installing windows in a newly constructed office building. After completion, it was discovered that the windows were defective and allowed water infiltration, causing damage to the interior finishes. The property owner filed a construction defect claim against the contractor. The contractor had builder’s risk insurance, which covered the cost of replacing the defective windows, repairing the interior finishes, and compensating the property owner for the inconvenience and business interruption.

These case studies highlight the importance of having the right contractor insurance coverage to protect against construction defects. Without insurance, these contractors would have faced significant financial burdens and legal liabilities. By having the appropriate coverage in place, they were able to navigate the claims process and resolve the issues while minimizing the impact on their businesses.

Construction Defect Risks
Today, your risk of becoming involved in a contractor insurance construction defect claim is greater than ever. New technology, materials, and applications have changed the way commercial buildings, homes, and condominiums are constructed.
Advances are enabling the design and construction of buildings that are more attractive and less costly. Yet, many of these advances have yet to be tested in real application over time, where problems may be uncovered that were never anticipated in the lab.
At the same time, new applications require new skills from contractors, who may overlook important requirements for installation or take shortcuts that cause devastating consequences. When difficulties occur, it’s hard to know the cause without investigation, and everyone on the project is forced to become involved. Fingers point. Often, whoever has the deepest pockets or the most to lose becomes the primary target for plaintiff lawyers. Fairly or not, you could be left holding the bag for others’ mistakes.

Let’s consider two of the most costly recent examples of construction defect, EIFS and FRT plywood:

EIFS

Architects love to design using EIFS (exterior insulation finishing systems). EIFS cladding systems resemble stucco, but are less costly to install and can be fashioned into a variety of architectural shapes, including soft curves and geometric designs. This unique flexibility makes EIFS treatments ideal for special elements such as porticos, archways, ornate overheads for windows, doors and decorative trim.

As with any exterior cladding, water can enter behind or around the system. Early applications often lacked drainage features more commonly used today. With no place to go, constant exposure to moisture can cause rot in wood and damage to other materials within the

building or home. Moisture-related problems led to an avalanche of individual and class action lawsuits by consumers.

Are you using EIFS in your designs? If so, strict adherence to guidelines for materials and methods of application is your best defense against a construction defect claim.

FRT Plywood

Back in the early 1990s, FRT, or flame resistant plywood, was touted as an alternative to fire walls in multi-unit buildings. It appeared to be a revolutionary product and was quickly adopted by architects and builders, especially in the Northeast. But high temperatures in attics caused early and unexpected deterioration of the material. Suppliers went Chapter 11, and builders were left to face clients with major defects in their buildings, condominiums, and homes.

What new building materials are you using in your projects? Have you done your research? How confident are you in the manufacturer and the testing? Are you comfortable with the risk?

Types of Construction Defects

Generally, courts categorize construction defects in one of four categories:

Design deficiencies typically relate to building designs that do not meet code or perform to standard.
Material deficiencies occur when use of inferior materials causes significant problems, such as when windows leak or fail to perform even when properly installed.
Construction deficiencies are issues created by poor quality workmanship.
Subsurface deficiencies usually involve cracked foundations or other structural damage caused when soil is not properly compacted and prepared for adequate drainage.

The goal of the court is to determine fault and damages, and require the party responsible for the defect to remedy the situation.

Contractor Insurance

Under the standard commercial general liability (CGL) policy, your contractor insurance company has a duty to defend you for construction defect claims if any damages are potentially covered under the policy. Coverage for construction defect only exists if there is an “occurrence” under the policy.
If the court finds against you, and you are a subcontractor, the policy will frequently pay for property damage caused by the occurrence. It does not, however, cover the costs to remedy your work – the faulty workmanship or material that led to the damage. In many cases, the cost to correct the construction defect will be greater than the actual property damages incurred. Keep in mind that if you are a general contractor, the whole project is your work.
Architects and engineers will want to consider the additional protection of a professional liability policy. Professional liability provides coverage when a design does not function as anticipated or promised. Ask for details.

What You Can Do to Manage Your Risk

Many risks you face are not typically covered by insurance. In addition to insurance, you can reduce your risk in two ways:

Transferring Risk

You can transfer some of your risk to a responsible third party. General contractors transfer risk to the subcontractors they use on a construction project through indemnification and hold harmless agreements, as well as additional insured requirements in their construction contracts.
Indemnification and hold harmless agreements are typically included in standard construction contracts. Keep in mind that if the subcontractor lacks the financial resources to meet its obligations, you still could be obligated for any construction defect claims. That’s why it is important to check the financials of your subcontractors and choose wisely. And never under any circumstances use uninsured subcontractors. They put you at great risk and could increase the cost of your own insurance.

Whenever you hire subcontractors, have them add your business to their liability policy as an additional insured. You will be protected by the subcontractor’s contractor insurance policy for work the subcontractor does for you, up to the policy limits. It’s a good idea to require liability limits of at least $1 million on the subcontractor’s policy.

Always request coverage as an additional insured on a primary basis. This way, you assure that their insurance responds first to a claim. (Your insurance becomes excess coverage and responds only if the judgment exceeds the subcontractor’s policy limits.) Be sure to specify the length of time you will be added to the policy for completed operations. Construction defects often come to light long after a job is completed. You can verify contractor insurance coverage by requesting a copy of the certificate of insurance on an annual basis.

Risk Control

The best way to avoid a construction defect claim is through quality construction. Work only with architects, engineers, and contractors who have good reputations and a track record of performance. Don’t cut corners. Plan and perform work in the correct sequence and with proper supervision. Be sure to document any and all plan changes. Organized records are critical to your defense.

Rely on Our Construction Expertise

The legal landscape for the contractor insurance is complicated and changing. In today’s legal climate, customers who are dissatisfied with work are increasingly resorting to litigation. The recommendations here are a starting point for understanding and avoiding construction defect claims. Sleep better at night by consulting AmeriAgency and your attorney. They are experts in their professions, as you are in yours. Both will bring you good advice and recommendations, and make them partners with your business.

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Conclusion: Importance of contractor insurance in protecting against construction defects