Liability For Defects In Construction - Who Is Responsible?

April 04, 2020

What is a construction defect?

A construction defect occurs when a portion or the entirety of a construction project fails to comply with the agreements laid out in the contract. In essence, liability for defects in construction contracts arises when the project doesn't perform the function it should or look the way the purchaser expected it to.

One example of this is when a newly built roof leaks. Another example is when a painter is hired to paint a house, but the paint immediately peels due to a bonding issue.

What kind of cases arise from construction defects?

There are two main types of liability for defects in construction cases. One comes from a breach of contract between the contractor and the homeowner; the other is a breach of contract between the contractor and subcontractor.

So, what is a breach of contract? It’s what occurs when you violate one of the terms of your contract – in this case, your employment contract.

However, there are other causes of action that can be brought in a construction defect case. Even if you follow the contract exactly, you can still be liable for construction defects. Suits may be brought for negligence, warranty, strict liability, and – in some instances – fraud.

Two Types Of Construction Defects

Defects in construction fall into two categories: obvious and latent. This is a term of art used by the legal industry. An "obvious" defect is exactly what it sounds like: an issue with the construction that is apparent to both the individual performing the work and the individual who contracted for the work to be performed. An example of this would be a large hole in the wall of a home after building has been completed. It is very clear and noticeable to all parties.

Most of the time, these obvious defects can be fixed with minimal costs to the builder. They are obviously visible, and they can and should be corrected before the job is completed.

The more difficult-to-determine defect is the "latent" defect. This is an issue with the construction that is hidden. An example of this is a roof that looks perfectly intact but experiences a large amount of leakage after a heavy rain. Another example is a support beam that fits the requirements laid out by the contract, but is not strong enough and over time gives way. Latent defects may seem insignificant to begin with, but over time and exposure to the elements, they can become problematic.

Contractor And Developer Liability For Construction Defects

The contractor's obligations are laid out in the construction contract. He is the one responsible for performing the work as it needs to be done. This includes hiring the subcontractors who perform specific tasks. Examples of these subcontractors are electricians, carpenters, and plumbers. The contractor is also responsible for purchasing the materials needed for the construction and determining how the construction will be performed.

The construction contract lays out the contractor's obligations; this will be the basis for liability. Liability for a contractor arises when the construction does not match what is agreed to in the construction contract.

What is a general contractor responsible for?

Generally, a contractor is not liable for construction defects if they follow the construction contract exactly. This is not true when the contractor knows the plan will not work.

An example of this is creating a construction plan with a support beam you know won't be sufficient to hold the constructed materials. If this were to occur, the contractor would be liable. Another instance in which a contractor will be held liable for a defect in construction is when the contractor should have known there would be a defect. This is a more complex and difficult matter. This occurs when you believe a support beam will be sufficient, even though an average contractor in your industry should know that the beam you selected will not be able to support the construction. If this beam gives out, and you should have known it would give out, you may be held liable for that defect.

Subcontractor Liability For Construction Defects

Much like a contractor, a subcontractor can be held liable for a defect in construction. This works much the same way liability does between a contractor and a project owner, however, in this case, the contractor is bringing suit against the subcontractor for a defect in their construction.

The basis for the liability is the same as the contractor's – the construction contract. A subcontractor is not liable for work that complies with the contract unless the subcontractor knew, or should have known, that a defect would arise if they performed the task in compliance with the contract.

Manufacturer Liability For Construction Defects

Contractors and subcontractors may find themselves in a lawsuit due to a defect caused by the manufacturer. In these instances, the product does not work the way it is intended to, and damage is done to the property or to an individual. This is called products liability, and it is the manufacturer that should have a suit brought against them – not the contractor.

An example of this is when a water sealant fails to prevent water from leaking in. Rather than holding the contractor liable for using that water sealant, the manufacturer should be held liable for producing a faulty product.

Architect/Engineer Liability For Construction Defects

A contractor is not liable for defects that arise out of miscalculations or improper designs from an architect or an engineer.

This occurs when an engineer miscalculates the weight that will be imposed on the finished construction, which leads to a structural failure. Contractors often find themselves in lawsuits in situations like this. This is because it is hard to immediately know if the failure occurred because the construction was improperly handled or the plan was incorrectly calculated.

With that said, contractors can be liable for these issues if they knew or should have known that the plan would not support the construction.

Conclusion

As a contractor, you can find yourself in a lawsuit or liable for faulty construction even if you follow the construction contract exactly. The best way to protect yourself from these issues is a well-rounded insurance plan that covers legal costs and defects arising from many sources. Some plans may only cover a subset of reasons for a construction defect lawsuit; protect yourself by finding a plan that will keep your assets safe if you find yourself liable for a construction defect.

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.

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