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You are a subcontractor or an attorney representing a subcontractor, which laid the foundation for a commercial building. Now, with the building almost complete, the owners claim the entire building must be demolished and rebuilt because of the defective foundation.

The owner sues the subcontractor. Subcontractor’s insurer denies coverage.

The old way of thinking was there was no insurance coverage for subcontractor because the building was not yet complete and the demolition arose from the subcontractor’s defective work.  Not necessarily.

Recent federal cases have held the defective workmanship exclusion, “j(6),” applies only to the actual defective work.  Insurers have a duty to defend the subcontractor and may have to cover the cost of removing and replacing all the non-defective work in order to allow repair or replacement of the defective work.

In construction defect cases, the cost of removing and replacing work which itself is not damaged can be quite significant and insurers frequently resist this cost. In some instances, such as the defective foundation, the demolition and subsequent rebuild required to gain access to the defective work is far more costly than the replacement of the defective work, which is not covered. Insurers’ arguments should not be accepted.

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