Construction Defects Are Not Covered Property Damage in Commercial Liability Policies
When working in the construction industry, understanding the limits of your insurance coverage is critical to avoiding financial surprises. One area where many construction professionals run into issues is with construction defects and property damage under their commercial general liability (CGL) policies. Contrary to what some may assume, CGL policies typically do not cover construction defects as property damage.
A construction defect refers to a flaw in the design, materials, or workmanship that results from poor construction practices. These defects can lead to damage, but the defect itself is generally not covered under a CGL policy. For example, if a contractor installs a defective roof that later leaks, the resulting water damage may be covered, but the cost to repair the faulty roof is not. The reasoning behind this exclusion is that insurance is intended to cover unforeseen accidents and damages, not the cost of fixing defective work or poor-quality materials.
The only time a CGL policy might kick in is if the defective work leads to damage beyond the defective area—often referred to as resulting damage. For instance, if a poorly installed window causes water damage to the interior of a building, the water damage might be covered, but replacing the faulty window itself would not be.
For contractors, this highlights the importance of maintaining a high level of craftsmanship to prevent defect claims. It’s also wise to explore other insurance options that can offer better protection for your business. Builder’s risk insurance or professional liability insurance (often referred to as errors and omissions insurance) are designed to cover risks like construction defects that CGL policies exclude.
Boufford Insurance can help you fully understand the limits of your CGL coverage and provide solutions to supplement it with the appropriate additional policies. This will protect your business from costly defect claims while ensuring your projects meet the highest standards.
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