Construction Defect Claims Can Destroy Your Business
I've seen solid contractors with decades of clean work history lose everything to a single construction defect claim. These cases are expensive, time-consuming, and emotionally draining. Understanding how they work helps you avoid them and survive if one finds you.
Types of Defects
Design Defects
Plans that are inadequate for their intended use. Engineering errors in structural calculations. Specification problems that lead to material or system failures. These typically flow to architects and engineers, but design-build contractors share this exposure.
Material Defects
Using materials that don't meet specifications. Products that fail despite proper installation. Material substitutions that create problems. Sometimes the manufacturer is at fault, sometimes the contractor who selected or approved the materials.
Workmanship Defects
Installation that doesn't meet industry standards. Failure to follow specifications or manufacturer instructions. Cutting corners that create problems later. This is where most contractor claims land.
Geotechnical Issues
Soil analysis errors that lead to foundation problems. Improper grading and drainage. Water table issues that weren't properly addressed. These often involve multiple parties and experts.
California's Legal Framework
Statutes of Limitation and Repose
California allows construction defect claims for up to 4 years after discovery of patent defects and 10 years after substantial completion for latent defects under the statute of repose.
What this means practically is that you can face a claim for work done a decade ago. Your insurance and records need to extend that far.
California Civil Code Section 895-945.5
California's Right to Repair Act (SB 800) establishes pre-litigation procedures for residential construction defects. Homeowners must provide written notice before filing lawsuits. Contractors get an opportunity to inspect and potentially repair before litigation. Specific procedures must be followed. This creates opportunities to resolve disputes before they become court battles.
Right to Repair
Contractors who respond properly to pre-litigation notices can sometimes repair defects instead of paying damage claims. This can significantly reduce overall costs and is worth pursuing when feasible.
How Insurance Responds
What's Typically Covered
Damage to other property caused by your defective work. Defense costs when you're sued for defect allegations. Third-party injury claims if defects cause injuries.
What's Typically Not Covered
The cost to repair or redo your own defective work. Your materials and labor to correct problems. Pure economic losses without physical damage.
This distinction matters enormously. If your faulty roof installation causes water damage to the building interior, the interior damage may be covered. But tearing off and replacing the roof itself isn't covered.
Completed Operations Coverage
Claims arising after project completion are covered under the products-completed operations portion of your policy. This coverage has its own aggregate limit. On large projects or with multiple claims, exhausting this aggregate is a real concern.
Protecting Yourself During Construction
Document everything. Photograph each phase before it's covered up. Maintain quality control procedures with written checklists. Get written approvals from owners, architects, and inspectors. Keep records organized and accessible.
When a Claim Arises
Immediate Actions
Notify your insurance carrier immediately. Don't delay, don't try to handle it yourself first, don't hope it goes away. Your policy requires prompt notice, and late notice can void coverage.
Don't admit fault or make promises to repair. Cooperate with the claimant's inspection requests, but let your carrier guide the process.
Preserve all documentation related to the project. Pull contracts, change orders, inspection reports, correspondence, and photographs.
Working With Your Carrier
Cooperate fully with your adjuster and assigned defense counsel. Provide requested documents promptly. Attend inspections and depositions as directed. Don't settle or make agreements without carrier approval.
Common Questions
Does my GL cover the cost to fix my defective work?
Generally no. GL covers damage your work causes to other property, not the repair of the work itself.
What if multiple contractors are involved?
Claims often name everyone remotely connected to the project. Your carrier will determine your share of responsibility through investigation and negotiation.
How long do I need to worry about defect claims?
In California, claims can arise up to 10 years after project completion. Maintain coverage and records accordingly.