Every answer and its explanation appears here once you have finished the path. Each one then links to the matching glossary entry, where the concept is set out in full with its worked example.
1. Why does a construction policy exclude defects, when defects are the leading cause of loss on a complex site?
Because covering the making good of bad work would turn the policy into a performance guarantee, that is, insurance of a duty the insured controls entirely
The exclusion marks the boundary between insurance and commercial warranty, and there is no drafting meanness in it: the insured profits directly from economizing on execution, and an insurer does not cover a risk its insured manufactures and gains from. Grasping that first stops you arguing against the principle and puts the effort where the money is, on the carve-up of the defective portion. The answer pointing to professional liability names another route to indemnity, a real one, that explains nothing about why the property policy stands back. The one invoking a regulatory ban credits the law with what comes from the nature of fortuity.
Glossary entry →2. A miscalculated tank bursts and destroys two pumps. What does each of the three wordings pay?
Flat exclusion: nothing; consequential damage: the pumps; making good covered: the pumps and the tank, less betterment
The gap between the first and the third wording can amount to the whole loss, which is why an underwriter who does not know which one they signed does not know what they bought. The flat exclusion removes the defect and everything flowing from it, which leaves out the most frequent family of losses and reduces the policy to external events. The answer believing all three agree on the pumps is the most instructive error: it assumes consequential damage is always covered, when that is exactly what the first wording refuses.
Glossary entry →3. Under the most common wording, a faulty weld caused a pipe to fail. Where is the split of the amount decided?
On the definition of the defective portion: the weld alone, and almost everything is covered; the whole pipe, and the excluded share becomes considerable
The boundary is clear in the statement and formidable in application: wordings speak of damaged unit, defective portion, defective item, and those words do not cover the same ground. Believing the discussion closed once the principle is admitted, as another answer suggests, is the error that gets you to the loss adjustment with no view on the carve-up, that is, with nothing to defend. The welder's subcontractor status raises a real question, whose defect it must be, but that is read in the definition of the insured and it settles a different point than the split of the amount.
Glossary entry →4. Of 48 non-compliant anchorages, 2 are corroded and damaged the deck; 46 are intact. Their replacement, 3.2 million, falls under what?
Under no construction policy, under any of the three wordings: replacing a non-compliant but undamaged item is a recourse against the supplier, not the repair of a loss
A property policy presupposes damage, and 46 intact anchorages carry none: they are merely non-compliant with a specification, which is a delivery failure and not a loss. A project owner building its file around the 3.2 million is fighting the wrong battle, and the genuinely arguable part is far narrower than it looks. The answer invoking the third wording is the subtlest: that wording does cover making good the defective item, but it covers it where the item was destroyed by a loss, not where it is simply bad. The one invoking the ten-year regime is on the wrong clock, the defect showing up before acceptance.
Glossary entry →5. A project-wide policy is written in the name of the project owner, the main contractor and all subcontractors and suppliers. Two consequences follow on defects. Which?
The exclusion applies to a defect committed by any of them, including the party the insured did not choose, and the insurer that pays cannot turn against the supplier at fault, which is its own insured
The two effects go together and are read in the same place, the definition of the insured, never in the exclusion clause: naming everyone extends the exclusion to everyone, and deprives the insurer of recourse against the party it insures. The answer keeping recourse against suppliers is the most common because it looks right, and it costs the project owner nothing, but it explains the price of the policy and needs to be contradicted knowingly. On a large project, design is often the work of an engineering firm or a distant supplier, and a policy excluding only the insured's own defect leaves a neighbor's defect covered instead.
Glossary entry →