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Insurance Coverage for Construction Defect Claims

The typical insurance policies carried by contractors and subcontractors do not cover claims for the cost of replacing defective work. The insurance policy may have an exception to this exclusion that typically applies when damage to the completed operations of the project results from the defective work of a subcontractor of the covered contractor. A case-by-case analysis is required to determine if insurance coverage is available for a potential responsible party in a construction defect claim. In some projects, the developer takes out insurance to cover all the contractors and subcontractors on the project (often referred to as an “OCIP” policy.)