What is a Construction Defect & What Insurance Do You Need?
Construction defects are not uncommon, and neither are the insurance claims that accompany them. These defects arise from faulty work, damaged materials, and even common mistakes.
Anybody in construction or risk management for construction companies needs to understand what a construction defect is, how they happen and how to subrogate the insurance claims that arise from them.
What is a Construction Defect?
A construction defect is “a defect in the design, the workmanship, and/or in the materials or systems used on a project that results in a failure of a component part of a building or structure and causes damage to person or property, usually resulting in financial harm to the owner,” says Modern Contractor, the equipment and business solution for concrete and general contractors.
So, we can sum up that definition and say a construction defect is a problem in the design, workmanship, and/or materials used in a construction project that causes a loss for an owner.
It is impossible to explain all the ways a construction defect can arise, but Insureon, the hassle-free business insurance company, shares a few of the most common.
- Design Flaws. Architects and engineers make mistakes just like everybody else. Most of the time, these mistakes are small, but sometimes they result in construction defects like water leaks or poor structural support.
- Defective Workmanship. This encompasses the most problems when it comes to construction defects. It includes anything from cracks in a foundation to problems with electrical wiring.
- Lack of Maintenance. Quality is key when it comes to avoiding a construction defect insurance claim, and the only way to ensure quality is for contractors to check on projects before completion. Most of these issues are easy to solve before the end of a project but are difficult to fix after completion.
- Normal Wear and Tear. It is important to make sure contractors use quality materials and processes to build because, over time, construction defects that were not present during construction can appear.
It is important to understand what a construction defect is and how they occur. To identify and classify them correctly, you have to understand the two types of defects.
Patent vs. Latent Construction Defects
A construction defect can be patent or latent. We are going to look at what each of these means.
- Patent Defect. A patent defect is an obvious problem that almost anybody can point out. For example, a kitchen sink that leaks every time you flush a toilet in the house. These defects often present immediately after the project is completed.
- Latent Defect. A latent defect is less obvious and more difficult to point out. It may take hiring a professional to discover these defects. They are also often not found until months or years after a project is finished. For example, rotting wood, an unstable foundation, or mold.
Understanding the difference between a patent and a latent defect and being able to identify them is important in construction defect insurance claims. Knowing the difference can help a contractor identify the problem and determine the best course of action to fix it.
How to Mitigate a Construction Defect Insurance Claim
Like with any insurance claim, the best way to mitigate a construction defect insurance claim is with insurance. This means contractors need to have the right insurance policies in place to pay for any damages or expenses that arise from a claim. Let us look at some policies that help cover contractors.
General Liability Insurance
General liability insurance is the most basic coverage any contractor needs for their projects. This covers risks involving customer injury and property damage. This insurance also covers libel and slander from construction defect claims.
Products-Completed Operations Insurance
This coverage is usually part of a general liability insurance policy, but it is important to understand its specific components for construction defects. Products-completed operations insurance covers your organization for claims that defective workmanship caused property or personal injury.
“Products” refers to organizations that manufacture and sell materials and “completed operations” refer to service organizations that build or install products.
Professional Liability Insurance
Professional liability insurance is important for any organization providing a service to customers. This insurance covers you from claims of inadequate service, negligent service, and errors in your service.
Builder’s Risk Insurance
Contractors need to carry this coverage for all projects. It covers losses from things like fires, storms, vandalism, and even stolen equipment.
Who is at Risk for a Construction Defect Claim?
Any contractor, subcontractor, or vendor working on a construction project or providing materials is at risk for a construction defect insurance claim. Because of this, contractors need to have the right insurance policies in place and make sure everybody working on a project has insurance coverage.
The best way to ensure everybody working on a construction project complies is with a certificate of insurance (COI) tracking and management software. To learn more about what this is and how it will increase your compliance, schedule a free product demo.