Generally speaking, a deficiency in the design or construction of a building or
structure resulting from a failure to design or construct in a reasonably
workmanlike manner, and/or in accordance with a buyer's reasonable
expectation. The most dangerous defects have the capacity to fail, resulting in
physical injury or damage to people or property. However, many defects present
no increased risk of injury or damage to other property but nevertheless cause
harm to the property owner in the form of loss of use, diminution in value, and
extra expenses incurred while defects are corrected. This latter type of defect
is often referred to as a passive defect. Whether, and to what to extent,
coverage applies in liability policies for claims alleging construction defects
is a matter of serious debate both in insurance circles and in the courts.
(Note: Many states have more specifically defined the term "construction
defect" for purposes of applying statutes that dictate processes for
remedying and litigating construction defect claims. These statutory
definitions vary by state.)