Construction Defect and General Liability Coverage
General Liability Insurance is not intended to pay for repairing and/or replacing poorly constructed products or poor workmanship.
What is construction defect?
Generally speaking, construction defect is 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.
Construction defects can result in serious physical injury to people or damage to property including loss of use of the property, diminution in value of the property and extra expenses incurred while defects are corrected.
A General Liability Policy provides coverage for “property damage” (as defined by the policy). Defective work or defective materials in and of itself does not constitute “property damage”. Many courts have ruled that property damage, which is a result of obvious violations of contract standards of workmanship, could be reasonably expected and as such are not considered an accident. Expected or intended injury is excluded under the policy.
The main types of construction defect include:
- Design Deficiencies – Does the design perform as intended? (example: a roof that leaks because of pitch problems)
- Material Deficiencies (example: inferior drywall)
- Construction Deficiencies (example: substandard workmanship)
- Subsurface / Geotechnical Problems (example: inadequate site drainage)
In determining whether or not a loss is the result of construction defect, many courts use the following criteria:
- Has the work violated any applicable building codes?
- Is the damage a direct result of construction means, methods, or practices that are below the building industry’s standard of care?
- Is the damage a direct result of a deviation from the approved plans and specifications?
- Is the condition in question below the reasonable expectation of the homeowner?
Examples of losses involving construction defect:
- The owner of a dwelling complained that the windows recently installed by the insured contractor often stuck, were difficult to close or open, would not securely lock and resulted in unusual heat loss due to the poor fit. It was determined that the windows had been sized and installed without the usual care. The contractor had to reinstall the windows for a cost of $2,000. There was no coverage under the General Liability Policy for this loss. As this loss was a result of a deficiency the insured contractor’s work, the “damage to impaired property or property not physically injured” exclusion was applied.
- The same homeowner later noticed that several floor boards near one of the defective windows were warping. He sued the contractor claiming that the faulty windows had allowed in moisture that eventually resulted in damaged floor boards. Damage to property other then the windows themselves was considered unexpected and therefore accidental and was covered under the General Liability Policy.
- The insured contractor installed a new roof to a large, one story dwelling. During a rainy season, water collecting on the roof caused it to collapse. It was determined that inadequate roof pitch was the cause of the loss. The collapse resulted in significant interior damage of around $25,000. The cost to replace the roof was $11,000. The contractor’s General Liability Policy paid only for the $25,000 interior damage. Loss to the roof was excluded under the Damage to Your Work exclusion.
- A plumber hooked up a toilet water line. That evening the lined leaked water onto the floor. By the time the leak had been discovered, the floor and the ceiling below the floor had been damaged. The cost to repair the floor & ceiling was $5,000 and was covered under the plumber’s General Liability Policy. The cost to replace the hook up was excluded under the Damage to Your Work exclusion.
- A homeowner purchased a new home form a homebuilder. Five years later, the homeowner decided to remodel the home’s kitchen. During the process, she was informed of the existence of mold and rotten wood in the crawl space of the house that caused significant structural damage throughout the flooring of the house. She was told the repairs would cost over $25,000. The homeowner sued the homebuilder for the cost to repair the damage. The homeowner also sued for bodily injury in the amount of $50,000 due to allergy related illnesses that had been seriously aggravated by the mold. The home builder’s General Liability Policy included a Biological Agents Exclusion which excluded property damage, bodily injury and clean-up costs arising from mold. The entire claim was denied.
Damage To Impaired Property Or Property Not Physically Injured Exclusion
This insurance does not apply to “Property damage” to “impaired property” or property that has not been physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or
(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
This exclusion does not apply to the loss of use of other tangible property resulting from sudden and accidental physical injury to your product or your work after it has been put to its intended use.
Damage To Your Work Exclusion
This insurance does not apply to “Property damage” to “your work” arising out of it or any part of it and included in the “products completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
Expected Or Intended Injury Exclusion
This insurance does not apply to “Bodily injury” or “property damage” expected or intended from the standpoint of the insured.
This exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property
“Property damage” means:
- Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
- Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it
Tangible property does not include any software, data or other information that is in electronic form.
Biological Agents Exclusion
A. This insurance does not apply to “bodily injury” or “property damage” arising out of the actual, alleged or threatened contaminative, pathogenic, toxic or other hazardous properties of “biological agents”.
B. This insurance does not apply to any loss, cost or expenses arising out any:
- Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, “biological agents” ; or
- Claim or proceeding by or on behalf of a governmental authority or others for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, “biological agents”.
C. Biological Agents are defined as follows:
- Mildew, mold or other fungi;
- Other microorganisms; or
- Mycotoxins, spores or other by-products of any of the foregoing;
- Viruses or other pathogens (whether or not a microorganism); or
- Colony or group of any of the foregoing
No coverage is provided by this coverage summary nor can it be construed to replace any provision of your policy. You should read your policy and review your Declarations Page for complete information on the coverages you are provided. If there is any conflict between the policy and this summary, THE PROVISIONS OF YOUR POLICY SHALL PREVAIL.