Product Update

Builders Risk Coverage for Construction Defect in Construction Risk Management


All builders risk insurance policies contain some sort of exclusion applicable to losses due to faulty workmanship or materials (i.e., construction defect). The rationale behind this type of exclusion is to avoid providing coverage for a contractor's failure to perform its work properly. However, most builders risk policies cover resulting damage to other property (commonly called "ensuing loss").

Increasingly, U.S. contractors and their insurers are starting to see what are known as "LEG" endorsements (LEG stands for London Engineering Group) on builders risk policies issued on large, complex domestic projects, especially where the lead underwriters are based in Europe. While there is not a significant body of case law in the United States interpreting the LEG exclusions, most insurance practitioners agree that the LEG-2 and LEG-3 exclusions offer broader coverage than the vast majority of faulty workmanship exclusions used by domestic underwriters. This release of Construction Risk Management includes a discussion of "Builders Risk Coverage for Construction Defect Claims" that explains the differences between the three versions of LEG endorsements as well as a hypothetical illustration of how the coverage provided under these endorsements would vary for a specified claim.

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