Construction defect claims are one of the fastest ways to harm a contractor’s reputation and bottom line. Whether the result of faulty materials, poor workmanship, or design flaws, these claims can be expensive to correct and defend. Worse yet, they often lead to finger-pointing among project stakeholders, leaving contractors exposed to litigation, even when they aren’t at fault.
Common Types of Construction Defects
Courts typically categorize defects into four main areas:
- Design Deficiencies – Inadequate or non-code-compliant designs.
- Material Deficiencies – Use of defective or unsuitable building materials.
- Construction Deficiencies – Poor workmanship or failure to follow specifications.
- Subsurface Deficiencies – Issues with soil preparation, drainage, or foundation work.
Costly Real-World Examples
- EIFS (Exterior Insulation Finishing Systems): A popular but problematic material due to water intrusion issues, leading to extensive rot and mold.
- FRT Plywood (Flame-Retardant Treated): Once hailed as a fire-resistant solution, it deteriorated under heat, leading to structural failures and lawsuits.
Insurance Considerations
A Commercial General Liability (CGL) policy may respond to defect claims, but only under certain circumstances. For example:
- Claims must result from an “occurrence”, like unexpected damage.
- CGL typically excludes coverage for faulty workmanship or materials, so contractors may still bear the cost of rework.
- Professional liability coverage is critical for architects, engineers, and design-build firms.
How to Protect Your Business
- Transfer Risk Smartly: Use strong contracts with indemnification clauses, hold-harmless agreements, and require subcontractors to list you as an additional insured.
- Vet Subcontractors Carefully: Review their financial stability, safety record, and insurance certificates annually.
- Don’t Cut Corners: Maintain quality at every stage of construction. Document all plan changes and site conditions to protect yourself later.
The Bottom Line
Construction defect claims aren’t always avoidable, but with strong contracts, proper insurance, and diligent risk control, you can significantly reduce your exposure.
For help reviewing your policies or contracts, contact McHugh Insurance Group.