A Word to the Wise About Construction Defects

Possibly no two words strike more fear in the hearts of architects, engineers, and contractors than "construction defect". A claim for a construction defect can cost astronomical amounts to correct and defend. Additionally, it can also damage your reputation and negatively impact your future opportunities for work. It's enough to break a business.

Construction Defect Risks

Today, your risk of becoming involved in a construction defect claim is greater than ever. New technology, materials, and applications have changed the way commercial buildings, homes, and condominiums are constructed.

Advances are enabling the design and construction of buildings that are more attractive and less costly. Yet, many of these advances have yet to be tested in real applications over time, where problems may be uncovered that were never anticipated in the lab.

At the same time, new applications require new skills from contractors, who may overlook important requirements for installation or take shortcuts that cause devastating consequences. When problems occur, it's hard to know the cause without investigation, and everyone on the project is forced to become involved.

Often, whoever has the most money or the most to lose becomes the primary target for plaintiff lawyers. Essentially, you could be held responsible for others' mistakes.

Types of Construction Defects

  1. Design deficiencies are typically related to building designs that do not meet code or perform to standard.
  2. Material deficiencies occur when use of inferior materials causes significant problems, such as when windows leak or fail to perform despite proper installation.
  3. Construction deficiencies are problems created by poor quality workmanship.
  4. Subsurface deficiencies usually involve cracked foundations or other structural damage caused when soil is not properly compacted and prepared for adequate drainage.

Disputes lie in the determination of fault and damages, and require the party responsible for the defect to remedy the situation.

Insurance

Under the standard commercial general liability (CGL) policy, your insurance company has a duty to defend you for construction defect claims if any damages are potentially covered under the policy. Coverage for construction defects only exists if there is an "occurrence" under the policy.

Many risks you face are not typically covered by insurance. In addition to insurance you can reduce your risk in two ways.

Transferring Risk

You can transfer some of your risk to a responsible third party. General contractors transfer risk to the subcontractors they use on a construction project through indemnification and hold harmless agreements as well as additional insured requirements in their construction contracts.

Indemnification and hold-harmless agreements are typically included in standard construction contracts. Keep in mind that if the subcontractor lacks the financial resources to meet its obligations, you still could be obligated for any construction defect claims.

Risk Control

The best way to avoid a construction defect claim is through quality construction. Work only with architects, engineers, and contractors who have good reputations and track records of good performance. Be sure to document any and all plan changes.

For more information on construction defects and the proper coverage to obtain, contact me at ojensen@scrivens.ca or 613-236-6101.

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