In this Massachusetts Appeal Court judgment the court was required to decide whether the costs of repairing or removing construction defects constituted “damages because of… ‘property damage’ ” within the meaning of a commercial general liability policy of a contractor building.
The homeowner experienced problems in the construction of their home by the insured, which included a missing structural post; incorrectly installed walls, sill plates and support beams; missing flashing on a roof deck; improperly fastened siding; and multiple issues with the installation of the home’s roof. The roof deck, siding and metal roof all had to be replaced to fix the construction defects.
The homeowner argued that their claim included the cost of repairing damage that was caused by the construction defects including cracks in walls and water damage from lack of flashing, and not the repairing of defects.
The policy defined “property damage” to mean “physical injury to tangible property, including all resulting loss of use of that property” or “loss of use of tangible property that is not physically injured”.
The court held that the words “construed in a reasonable and practical way” do not provide cover for sums insured. The Contractor became legally obligated to pay as damages for the construction defects.
The court referred to other America jurisdictions all of which reasoned that commercial general liability policies define “property damage” as “physical injury” which suggests the property is not defective at the outset, but rather is only damaged after construction.
The court went on to say that because faulty construction is defective at the outset, other jurisdictions have distinguished between claims for the cost of repairing or removing construction defects, which are not claims for property damage, and claims for the cost of repairing caused by construction defects, which are property claims. For example, an improperly installed window would not be “property damage” but resulting water damage to a surrounding wall would be.
The court found that reasoning persuasive and said that commercial general liability policies provide coverage “for tort (delict) liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained”
The court concluded that construction defects, without more, do not constitute property damage within the meaning of a commercial general liability policy.
To the extent that the homeowner, on behalf of the contractor, argued that they sought the costs of repairing the damage that the construction defects caused, not the costs of repairing or removing the construction defects themselves, the court said that the homeowner had not identified any sums they were awarded to repair the cracks or the water damage. The loss which was claimed was the costs of repairing or removing the construction defects themselves.