Builders and contractors who buy Commercial General Liability Insurance policies expecting protection from allegations of inadequate or faulty work should beware.
A CGL policy generally does not cover the cost to repair or replace the contractor’s own defective work. To trigger coverage, most policies require a covered "occurrence" that causes property damage during the policy period, and that occurrence is usually defined as an accident, including repeated or continuous exposure to harmful conditions.
Most CGL terms define property damage as physical injury to tangible property, including loss of use of the property that is physically damaged. Coverage normally does not extend to purely economic loss or the cost to restore the contractor’s own work that is defective but has not caused third‑party property damage.
When a construction defect leads to a dispute, insurers and courts look at several factors to decide if the policy’s occurrence and property damage requirements are met. Those factors include the scope of work or products the contract required the policyholder to provide, the policy’s specific definitions, the nature of the alleged faulty construction, and how the defect occurred.
If you carry this coverage or are evaluating it, review the policy language carefully and consider additional guidance like Understanding Insurance Policies for Construction and Personal Needs to compare terms and examples.
State law varies and can change how policy language is interpreted; some states require third‑party property damage for CGL coverage to apply, while others bar coverage for repair or replacement of the insured’s own defective work. The work of subcontractors and who is considered a third party are common sources of dispute.
Many jurisdictions now follow the approach that a business’s own faulty work, standing alone, is not third‑party property damage under a CGL policy, though third‑party damage caused by defective work may still be covered in some cases.
To determine whether a claim might be covered, ask your insurer to explain how the policy defines occurrence and property damage, and then ask an agent to review your specific contract and exposures.
Frequently Asked Questions
Does CGL cover the cost to fix my firm's defective work?
Typically no; CGL policies usually do not pay to repair or replace the insured’s own faulty workmanship unless the defect caused separate third‑party property damage that the policy covers.
What counts as an "occurrence" under a CGL policy?
An occurrence is generally an accident, which can include repeated or continuous exposure to harmful conditions that result in bodily injury or property damage during the policy period.
How do state laws affect CGL coverage for construction defects?
State court decisions and statutes can change how policy language is interpreted, so coverage that appears in the policy may be limited or expanded by local law.