Construction defect is defined as property damage to your work, as a workers comp attorney NY relies on can explain. Whether it is in a house or construction project, the cause of construction defect is usually defective design, defective product, defective installation, or a combination of all three. The building industry is constantly experimenting with new building products and techniques in an effort to reduce cost, become more efficient, and to add value. Sometimes these products do not stand the test of time and unforeseen problems can arise that result in construction defects. Examples of this include EIFS (or synthetic stucco masonite), poly butylene plumbing, and more recently
Chinese drywall. Property damage to your work is evidenced by problems such as:
- Fire damage
- Water damage
- Moisture damage
- Bending of materials
- Warping
- Cracking
- Breaking
- Sagging
- Chipping
- Fading
- Peeling
- Mold
- Fungus
- Pollution
- Asbestos
The full weight of the construction defect crisis began to be felt by the insurance industry about ten years ago, regionally in the southeast. The first wave of large-scale lawsuits arose over EIFS or synthetic stucco. The insurance industry fully funded a plaintiff attorneys gravy train in this area since most of the cost were covered by insurance policies of the manufacturers, distributors, builders, and installers. The EIFS epidemic seemed to fuel more and more construction defect lawsuits of all different types. As a result, two trends emerged from this. The first was that most insurance carriers left the marketplace and refused to write general liability insurance for builders since they reasoned that they could not make a profit at any premium level. The second was that the carriers that remained in the market for builders learned a lesson from the EIFS epidemic and decided that they did not want to be a funding source for another plaintiff attorneys feeding frenzy. They decided to attack the problem by adding a multitude of exclusions to the policy form to reduce and eliminate coverage for construction defect lawsuits. These included:
- Synthetic Stucco Exclusion
- Soil Movement Exclusion
- Fungus, Mold, Mildew, Property Damage Exclusion
- Absolute Pollution Exclusion
- Products and Completed Operations Exclusion
For many years the standard general liability policy form, when issued to a contractor, has had
Exclusion L which takes away coverage for lawsuits alleging property damage to the contractors work, arising out of such work. However, the policy language makes an exception and gives back coverage for such property damage lawsuits if the damaged work was performed on behalf of the insured contractor by their subcontractor. In other words, this property damage exclusion does not apply to a builder that subs out their work. This meant that the general liability policy provided much broader coverage to a general contractor as opposed to a subcontractor. But, around 2004 most insurance carriers that provided general liability policies for builders started adding exclusion CG 2294 or a similar endorsement to the policy. This takes away the special coverage exception for general contractors such as builders, and leaves them without important coverage for property damage to their work exclusions.
Thank you to Polsky, Shouldice & Rosen, P.C for providing their insight on construct defect and general liability.