Are Construction Defect Increasing Insurance Claims?

  • 3 min read

The current frenzy in the real estate market, coupled with backlogs in the construction industry, is causing more than just challenges in building or renovating homes. A ripple effect is being felt in the insurance industry, specifically in the realm of construction defect insurance claims. For contractors and builders, navigating this landscape is becoming increasingly complex.

The Unseen Consequences

While the difficulties in procuring materials and finding skilled labor are widely recognized, the repercussions extend beyond the immediate hurdles in construction projects. Construction defect insurance claims are on the rise, shedding light on the far-reaching impact of the current state of the industry.

Understanding Construction Defect Insurance

Contractors and builders typically have specific coverages to protect themselves against construction defects. These defects can manifest in various ways, from improper installations to crucial elements being overlooked. For instance, a subcontractor’s error may result in misaligned trades or mechanical components with the framing, leading to plumbing or structural issues down the line.

Common Construction Defects:

  • Improper Installations: Elements installed incorrectly or not meeting industry standards.
  • Omissions: Critical components or steps overlooked during construction.
  • Coordination Issues: Lack of alignment among different trades or mechanical systems.
  • Structural Problems: Defects compromising the structural integrity of the building.

The Importance of Quality Control

Given the significant shifts in the construction industry over the past 24 months, contractors need to assess if their existing coverages are adequate. Having a quality control person review projects can be crucial in identifying potential defects or deviations from specifications.

Key Considerations:

  • Additional Coverages: Evaluate if there are additional coverages necessary due to evolving industry dynamics.
  • Coverage Assessment: Ensure that existing coverages align with the current needs and challenges.
  • Quality Control Measures: Implement thorough quality control checks to catch issues that may be missed during inspections.

Looking Beyond Inspection Sign-offs

While inspections are essential for obtaining permits, they may not catch every construction defect or quality control problem. Inspectors may focus on safety, framing, or major systems, potentially overlooking cosmetic or non-structural issues. This emphasizes the need for additional measures, including internal quality control processes.

Proactive Measures for Contractors and Builders

In light of the changing landscape, contractors and builders are advised to take proactive measures to mitigate the risks associated with construction defects.

1. Regular Assessments:

Conduct regular assessments of ongoing projects to identify and address potential defects promptly.

2. Skillful Workforce:

Ensure that subcontractors and staff possess the required skills and expertise for their specific roles.

3. Comprehensive Training:

Provide comprehensive training to personnel to maintain high-quality construction standards.

4. Timely Inspections:

Schedule timely inspections beyond those required for permits, focusing on quality control.

5. Legal Guidance:

Seek legal advice to ensure that insurance coverages adequately protect against potential construction defect claims.

In navigating the evolving real estate and construction landscape, contractors and builders must stay vigilant. Construction defect insurance claims underscore the importance of comprehensive coverage, skilled labor, and proactive quality control measures. By adapting to the current challenges and ensuring robust risk management practices, industry professionals can protect their projects and reputations in an unpredictable environment. For further insights and guidance, consult with insurance experts and legal professionals in the field.

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