Faulty Workmanship and Insurance: What Skilled Trades Professionals Should Know

Faulty workmanship claims can create significant financial and legal challenges for contractors and subcontractors, especially skilled trades professionals. Claims may arise from allegations of improper installation, construction defects, construction errors, incomplete performance or other issues related to completed work. Depending on the circumstances, these situations can result in costly repair costs, project delays, disputes, and potential legal exposure.

A common misconception in the construction and skilled trades industries is that insurance automatically covers all losses associated with faulty workmanship. In reality, whether coverage may be available depends on a variety of factors such as the nature of the claim, the type of damage involved, the policy language, and the specific circumstances surrounding the loss.

Understanding how faulty workmanship claims are addressed under applicable insurance policies can help contractors, subcontractors, and specialty trades businesses better manage risk and avoid unexpected outcomes.

Key Takeaways

• Faulty workmanship claims generally involve allegations of defective construction, improper installation, poor-quality work or incomplete performance.
• Insurance coverage is not automatic and depends on the terms, conditions exclusions and limitations of the applicable policy.
• Commercial General Liability (CGL) insurance may not cover the cost to repair or replace the defective work itself.
• Coverage outcomes may vary based on policy language, contractual obligations, applicable law and the claim circumstances.
• Skilled trades businesses can help reduce risk through quality control, proper documentation and proactive risk management.
• Construction and skilled trades companies should periodically review coverage to identify potential gaps.
   

What Is a Faulty Workmanship Claim?

A faulty workmanship claim generally arises when work is performed improperly, negligently, or below acceptable industry standards.

For example, these claims may arise from:

• Improper installation
• Defective construction techniques
• Use of incorrect materials
• Failure to follow plans or specifications
• Poor workmanship quality
• Incomplete work
• Failure to meet building code requirements

Faulty workmanship claims can affect many skilled trades, including:

• Electricians
• Plumbers
• HVAC contractors
• Roofers
• Framers
• Concrete contractors
• Drywall installers
• Carpenters
• Flooring contractors
• Painters
• Excavation contractors

In many cases, when faulty workmanship leads to a loss, disputes often arise over what insurance will apply. The primary issue is typically whether coverage extends only to resulting property damage, or also includes the cost of repairing or replacing the defective work itself.

The following examples illustrate some common faulty workmanship scenarios and the types of losses that may result:

Roofing Installation Failure

A roofing contractor improperly installs flashing, resulting in water intrusion months later.

Examples of potential resulting consequences may include:

• Interior water damage
• Mold concerns
• Business interruption
• Repair costs
• Liability disputes

Electrical Contractor Error

Improper wiring causes a fire that damages portions of a building.

The contractor may face:

• Property damage claims
• Bodily injury exposure
• Litigation expenses
• Regulatory investigations

Concrete Defects

Improper concrete curing leads to cracking and structural instability.

Potential consequences include:

• Demolition and replacement costs
• Project delays
• Contract disputes
• Claims from owners or developers

Does Commercial General Liability Insurance Cover Faulty Workmanship?

Commercial General Liability (CGL) insurance can be a valuable risk mitigation tool  for construction and skilled trades businesses. However, questions often arise regarding whether and to what extent CGL insurance responds to claims involving faulty workmanship.

In general, CGL insurance is not intended to function as a warranty or guarantee of workmanship quality of a contractor’s work.

While coverage depends on the specific policy language and applicable law, CGL policies generally are not intended to cover:

• The cost to repair defective workmanship
• Replacing improperly installed materials
• Reperforming incomplete work
• Warranty or performance guarantee obligations
• Pure workmanship disputes without resulting damage

However, coverage may be available when faulty workmanship results in bodily injury or damage to property beyond the defective work itself, such as:

• Water damage caused by improper plumbing installation
• Fire damage caused by faulty electrical work
• Structural damage resulting from defective construction
• Bodily injury caused by unsafe work conditions
• Damage to other portions of a project unrelated to the defective work itself

Policy language, exclusions, endorsements, contracts, and state law can all affect how faulty workmanship claims are evaluated.

An illustrative example of damage that may be covered by CGL:

A plumbing contractor improperly installs a pipe, which later leaks and causes water damage throughout a commercial building.

In this situation:

• The cost to repair or replace the defective pipe itself may not be covered
• The resulting water damage to walls, flooring, and other property may potentially be covered

This distinction is often central to faulty workmanship claims.

Other Common Insurance Policies That May Be Relevant

In addition to Commercial General Liability (CGL) insurance, several other types of insurance may be relevant to faulty workmanship claims, depending on the circumstances. These include:

Faulty Workmanship Endorsements: Some insurers offer endorsements (like Contractors Faulty Workmanship coverage) that may provide limited coverage for certain costs associated with faulty workmanship. Available coverage varies by insurer, endorsement language and jurisdiction.  The scope of coverage varies significantly and may include certain repair or replacement costs of self-performed work and materials.

Contractors Professional Liability Insurance: May respond to claims arising from design errors, inadequate oversight, or breach of professional standards.  This coverage is commonly purchased by contractors that provide design-build engineering, consulting or other professional services.

If a design error or other professional services error contributes to faulty work and financial loss, a professional liability policy may cover resulting damages and legal defense costs, subject to the policy’s terms and conditions.

It is important to review policy exclusions, as some policies may exclude coverage for faulty workmanship, especially if related to construction defects or warranty issues.

Builder’s Risk Insurance: Builder’s Risk Insurance is generally intended to cover physical loss or damage to a project during construction, rather than the cost of corrective the defective workmanship itself.

Depending on the policy language, coverage may be available when faulty workmanship results in a separate covered cause of loss or ensuing damage.

Why Faulty Workmanship Claims Become Complicated

Faulty workmanship disputes can involve multiple parties, overlapping responsibilities, and complex coverage considerations.

Several issues can complicate these claims:

1. Determining Whether “Property Damage” Occurred

Whether “property damage” has occurred is often a threshold coverage question.  If the claim involves only the cost to repair defective work, without resulting damage to other property, coverage may be limited or excluded.

2. Subcontractor Involvement

Construction projects often involve multiple subcontractors and specialty trades. Determining responsibility for defective work can become difficult when several parties contributed to the project.

3. Contractual Obligations

Construction contracts may include indemnification clauses, warranty obligations, limitations of liability or insurance requirements that can affect the parties’ rights and responsibilities when a claim arises.

4. State Law Differences

The treatment of faulty workmanship claims can vary by jurisdiction, as courts may interpret policy language and exclusions differently.  

Because coverage determinations are highly fact-specific and depend on the policy language at issue, contractors should review potential claims with their insurance professional, broker or legal counsel.

Why Faulty Workmanship Claims Become Complicated

Faulty workmanship disputes can involve multiple parties, overlapping responsibilities, and complex coverage considerations.

Several issues can complicate these claims:

1. Determining Whether “Property Damage” Occurred

Whether “property damage” has occurred is often a threshold coverage question.  If the claim involves only the cost to repair defective work, without resulting damage to other property, coverage may be limited or excluded.

2. Subcontractor Involvement

Construction projects often involve multiple subcontractors and specialty trades. Determining responsibility for defective work can become difficult when several parties contributed to the project.

3. Contractual Obligations

Construction contracts may include indemnification clauses, warranty obligations, limitations of liability or insurance requirements that can affect the parties’ rights and responsibilities when a claim arises.

4. State Law Differences

The treatment of faulty workmanship claims can vary by jurisdiction, as courts may interpret policy language and exclusions differently.  

Because coverage determinations are highly fact-specific and depend on the policy language at issue, contractors should review potential claims with their insurance professional, broker or legal counsel.

Final Thoughts

Faulty workmanship claims can result in significant financial and reputational consequences for skilled trades and other construction professionals. While insurance may help cover certain resulting damages, it often does not cover the cost to repair defective work itself.

Understanding how coverage applies, as well as any limitations and exclusions that may affect a claim, can help contractors make more informed risk management decisions.

Businesses and individuals in skilled trades and construction industries should work closely with experienced client advisors to evaluate their operations, contractual obligations, and insurance needs.

Acrisure can help! Explore our insurance and risk management solutions for the skilled trades and construction industry to help you better manage evolving operational and liability risks.