Construction Defect Claims: Coverages and Cases


Amy Kallal of Mound Cotton Wollan & Greengrass LLP presented a comprehensive summary on the state of the case law addressing various issues related to construction defect claims, including whether and when damage arising from construction defect constitutes an occurrence, the impact that right-to-repair statutes may have on insurance coverage, whether pro-active repairs fall within the scope of coverage provided by various policies, when construction defect claims may be aggregated, and applicable triggers of coverage. 

Resolution of these issues varies among jurisdictions and depends on the particular policy language at issue. For example, insurers have contended that damage arising out of construction defect does not constitute an “occurrence” under the terms of a standard CGL policy because claims for faulty workmanship: (1) are foreseeable; (2) constitute “business risk;” (3) have the effect of converting a CGL policy into a performance bond; and/or (4) constitute breach of contract claims not covered under a CGL policy.  Policyholders have countered that defective work is unintentional, that an insured reasonably expects its policies to cover such claims, and that the subcontractor exclusion found in most CGL policies evidences the parties’ intent that the construction defect claims would be covered under the CGL.  The courts have split on whether construction defect causes an “occurrence.”  Certain states have passed statutes in order to bring construction defect claims within the scope of CGL coverage.

Another emerging issue on the construction defect front concerns whether notice received under a “right to repair” statute constitutes a suit or claim for damages, triggering the policyholder’s right to defense and indemnity under an insurance policy.  Again, resolution of this issue is dependent upon the particular policy language at issue, and different courts have reached different results.