Construction Defects... Have we seen the worst of them?

When most captive groups began there was no knowledge of construction defect claims lurking in the weeds for our groups. Our claims team had to learn to effectively manage them right along with the rest of the carriers and third party administrator’s. The litigation began, as many do, in California and slowly crept through Colorado as it made its way to other states. By 2009 we had gained both knowledge and experience.

These claims are vastly different than your typical General Liability claim because many states require them to be handled under what is referred to as a “continuous trigger”. This means every policy year from the start of a new project to the date you are put on notice of a defect or suit is filed could be impacted by this type of claim. As a customer you need to be aware of two major concerns:

  1. As a subcontractor, many times the defect is not caused by their work but they are named because they were a subcontractor on the project and added the general contractor as an additional insured on your policies.
  2. The defense costs mount quickly; along with substantial investigation and experts are required to sort out the causes of the defect. We have seen earth and concrete work, sprinkler systems, plumbing, siding and roofing, contractors as specific targets for causation.

Helpful tips for construction defect cases:

  • Keep current with codes and standards.
  • Understand all the products you are using, including the new eco-friendly products.
  • Have your contracts reviewed by your legal counsel or insurance professionals.
  • Document every step on the construction process.
  • Have a robust quality assurance/quality control program.
  • Hire and train all employees to watch for potential design issues and alert the general contractor immediately.
Creative Risk Solutions has handled approximately 400 construction defect claims through the years and we can safely say they are not our favorites either. Approximately 69% of the dollars have been paid to lawyers and experts to defend your company in these complex cases where little has been paid for indemnity.