5 common losses seen in construction and general contracting : 5 part series part 3 of 5
General Contractor and Construction Insurance: Construction Defects & Faulty Workmanship
Construction defect claims can be some of the most complicated and expensive exposures facing general contractors and construction companies.
Unlike an accident that happens immediately, construction defects may not become apparent until months or even years after a project has been completed.
For contractors, understanding how construction defects, faulty workmanship, completed operations, and resulting property damage can interact with an insurance program is an important part of managing long-term risk.
1. Water Intrusion
Water intrusion is a common source of construction disputes and insurance claims.
Example: Exterior materials are improperly installed, allowing water to enter the building and damage interior walls, insulation, flooring, and other finishes.
A relatively small construction issue can eventually result in significant property damage and allegations against multiple parties involved with the project.
2. Roofing Problems
Roofing defects can remain hidden until weather or other conditions expose the problem.
Example: Improperly installed flashing allows water to enter a commercial building several months after the project is completed.
By the time the issue is discovered, the resulting damage may extend well beyond the original area of defective work.
3. Improper Installation
Construction projects involve numerous trades, materials, and specialized systems. A mistake by one trade can potentially affect other portions of the project.
Example: A component is installed incorrectly and eventually fails, causing damage to surrounding property. Key word and phrase here property damage!
Contractors should understand that the cost of correcting defective work and damage resulting from that work can be treated differently under an insurance policy. Their faulty workmanship would not be covered unless they carried professional liability (errors and omissions).
4. Subcontractor Work
General contractors frequently rely on subcontractors to complete portions of a project.
Example: A subcontractor performs work incorrectly, and the issue later results in damage to another portion of the building.
General contractors should carefully review subcontractor agreements, certificates of insurance, additional-insured requirements, and risk-transfer provisions.
A certificate of insurance is important, but contractors should also understand that a certificate alone does not tell the entire story of a subcontractor’s coverage.
5. Claims After the Project Is Completed
One of the biggest challenges with construction defect claims is that they may arise long after the contractor has completed the project.
Example: A property owner discovers recurring water intrusion two years after a construction project and alleges that the original work was defective.
Long-term construction exposures are one reason contractors should think carefully about insurance, contracts, documentation, and risk-management practices throughout the life of a project.
Insurance Coverages to Consider
Depending on the contractor’s operations, the insurance program may include:
● General Liability
● Products & Completed Operations
● Workers’ Compensation
● Commercial Auto
● Inland Marine
● Builders Risk
● Umbrella or Excess Liability
Contract requirements may also dictate specific limits, endorsements, additional-insured provisions, and contractual risk-transfer requirements.
It is important to understand that general liability insurance does not automatically mean every construction defect or faulty workmanship claim will be covered. Coverage depends on the specific policy language, facts of the claim, exclusions, endorsements, and other circumstances.
Protecting Your General Contracting & Construction Business
Construction projects throughout Colorado, the Denver metro area, and other markets can involve complex relationships between property owners, general contractors, subcontractors, architects, and other trades.
A strong insurance program and well-structured contracts can help contractors manage potential exposures before they become costly disputes.
At CIB National Insurance & Consulting, we help general contractors and construction companies evaluate their insurance programs and build coverage around their projects, operations, and contractual requirements.
If you’re a general contractor or construction company in Colorado or any other state and want to review your current insurance program, contact our team.
Coverage varies by policy, carrier, and insured operations. This article is provided for general informational purposes only and does not constitute insurance, legal, or professional advice or guarantee coverage for any specific claim or circumstance.