New opportunities mean new construction defect exposures

Posted by John Cofini on Thu, Aug 14, 2014 @ 12:33 PM

Construction-Defect-ExposuresDuring the Great Recession, many contractors were forced to cast wider nets, venturing into new territories and taking on new types of projects. Others left the construction industry altogether. Now, opportunities are plentiful in New Jersey and New York, but finding tried and proven subcontractors and suppliers can be challenging.

Whatever your situation, keep in mind that new opportunities can also present new risks: 

  • New relationships with unknown or unproven subcontractors
  • Different territories with different insurance requirements and legal environments
  • New risks and exposures you may be inexperienced at managing
  • Being forced to “learn as you go” on projects you’re not used to handling

Also remember that if you build it, you can be sued.

Construction defect claims are brought for a variety of reasons – deviations from building code or architectural plans, defective materials, or even disgruntled customers with imaginary issues, just to name a few. And construction defect lawsuits can quickly ensnare contractors, subcontractors, land owners, developers, and anyone else involved in a project. In short, if you’re involved in building, a customer can sue you in a construction defect claim – for up to 10 years in some states.

Before you venture into uncharted waters, take these steps to avoid getting caught up in a costly construction defect claim: 

1.  Do your homework on new subcontractors. Carefully screen and get to know the reputations of any new subcontractors you’ll be using, including how well trained their workers are. Make sure every subcontractor has insurance and that you receive a Certificate of Insurance from them every year – and that you’re named as an additional insured. Check their limits of liability to ensure they’re the same as yours.

2.  Understand the insurance and legal requirements. If you’re doing business in a new territory, you’ll need to be thoroughly familiar with the laws and insurance requirements of that area. It’s worth the time and expense to consult with an attorney and a local insurance expert.

3.  Have a quality assurance/quality control (QA/QC) program for every project. A QA/QC program can help ensure that a project is done right the first time and performs as intended. The QA/QC program should outline areas such as risks and exposures, management responsibility, materials selection, subcontractor selection, workmanship, inspections, and documentation.

4.  Document and save everything. Construction projects create a mountain of paperwork including log books, inspection forms, purchase orders, training documents, and specifications. This information can be vital to investigators for sorting out what happened in a construction defect claim, and not having proper documentation can only cost you money. And since construction defect claims usually pop up long after a project is completed, you need to save everything. A local attorney can advise you of state requirements on document retention.

5.  Carry the proper insurance. With the maze of policies, exclusions, endorsements, and coverage questions involved in the typical construction defect claim, make sure you and everyone involved in the project have adequate coverage.

Construction defect lawsuits can be extremely complex, with multiple parties and insurance policies involved. They can be time-draining, often dragging out for months or years. And they can be costly, sapping precious financial resources to pay for litigation, repairs, and settlement costs. So before you venture into new opportunities, make sure you understand the risks and take steps to protect your operation.

For more information about how to protect your business from construction defect claims, see the New York construction insurance experts at BNC Insurance and Risk Advisors. Request a construction insurance quote, or to learn more about the types of clients we work with, download our Construction Case Study Six Pack

Tags: New York construction insurance, construction risk management, New Jersey construction insurance, construction defect exposures