Recent Massachusetts Appeals Court Decision Holds that Construction Defects Are Not Covered by CGL Policy

The recent Massachusetts Appeals Court decision in Lessard v. R.C. Havens & Sons, Inc. (August 2024) offers important clarification for contractors, subcontractors, and insurers regarding the coverage of construction defects under commercial general liability (CGL) policies. In this case, the Court concluded that the costs of repairing or removing construction defects alone are not covered by a CGL policy, reaffirming that such policies are intended to cover damage caused by defects, not the defects themselves.

Case Overview

In Lessard, homeowners sued R.C. Havens & Sons for defects in their newly constructed home, leading to substantial structural issues and the need for extensive repairs. While the jury awarded the homeowners over $272,000 in damages, the key legal question was whether Havens’ CGL insurance policy covered these costs. The insurer, Main Street America Assurance Company (MSA), argued that the policy did not apply to the repair or removal of construction defects themselves, but instead only to damage caused by those defects.

The Appeals Court sided with the insurer, affirming that the costs to repair or remove the defects did not constitute "property damage" under the policy. This decision reinforces the principle that CGL policies are designed to cover tort liabilities—such as damage to other property caused by the defects—rather than the cost of correcting defective work itself.

Key Takeaways

This decision highlights that CGL policies do not cover the cost of correcting or removing construction defects. Contractors must understand that the policies primarily protect against third-party damages, not their own defective work.  Contractors should ensure that their contracts clearly allocate the risk of construction defects, including securing proper warranties and considering additional insurance coverage or bonds for defective work.  The decision also underscores the importance for contractors to perform work to high standards, as the costs of correcting defects—if not covered by insurance—could fall entirely on the contractor, impacting profitability and business relationships. 

This ruling highlights the importance of understanding the limits of CGL coverage and the need to proactively address risk in construction contracts.  For further information, please contact Kenneth Rubinstein and Nicholas Dube with Preti Flaherty’s Construction Group.