In a case of first impression in Massachusetts, Lessard v. R.C. Havens & Sons, Inc., 104 Mass. App. Ct. 572 (2024), the Appellate Court confirmed that construction defects, without more, do not constitute property damage within the meaning of a commercial general liability policy (CGL).

In Lessard, the homeowners filed suit against an insured homebuilder for construction defects in their home. After the homeowners won a jury verdict, the homebuilder’s insurer intervened and sought a declaratory judgment that it owed no duty to indemnify the homebuilder under its CGL policy. The superior court entered a declaratory judgment in favor of the insurer, and the homeowners appealed.

The Appeals Court determined that it needed only to address whether the homeowners’ losses constituted “property damage” within the meaning of the CGL policy to reach its decision. The CGL policy required the insurer to “pay those sums that the insured becomes legally obligated to pay as damages because of … ‘property damage’ … to which this insurance applies.” The policy defined “property damage” to mean “physical injury to tangible property, including all resulting loss of use of that property” or “loss of use of tangible property that is not physically injured.” The court acknowledged and accepted the reasoning from other jurisdictions that CGL policies “define ‘property damage’ as ‘physical injury,’ which suggests the property was not defective at the outset, but rather was initially proper and injured thereafter” as well as the common distinction “between claims for the costs of repairing or removing construction defects, which are not claims for property damage, and claims for the costs of repairing damage caused by construction defects, which are claims for property damage.”

The declaratory judgment was affirmed since the homeowners did not provide any evidence of their repair costs at trial, and the underlying jury verdict only awarded damages for the costs of repairing or removing construction defects.