Latent Defects insurance covers the costs associated with repairing structural damage that is a consequence of design, construction or material faults in a new build, conversion or completed build project –these faults may not be apparent at the time of practical completion.

Latent Defects Insurance or Collateral Warranties Key items to consider when purchasing Latent Defects insurance

For collateral warranties, not all parties involved are necessarily included and if a defect is found to be the fault of an omitted company there is no right of recourse against them. This puts the expense of repair firmly in the current owner’s pocket.

A warranty becomes invalid in the event that the party who issues it ceases trade; the policy will lapse following insolvency and this means that the claim will not be indemnified. This is because collateral warranties are backed by professional indemnity insurance.

After practical completion has been achieved, the liability for building, developing and/or designing continues. This product is designed to transfer the ongoing defect risk to an insurance policy rather than being retained by the parties involved. Post-completion issues can damage both the profitability of the project and, more importantly, long-term reputation. An additional benefit is that Latent Defects insurance can ease the process of future sale(s).

The scope of cover available for this product is vast, Consort Insurance will guide you through the process of identifying robust and relevant cover levels to ensure that adequate protection is in place.

  1. A wording that provides financial protection in the event that a contractor, developer or architect was to go into liquidation having failed to take out an appropriate warranty
  2. Achieve a 10- or 12-year period whereby the policy is flexible enough to extend to include component failure, extensions and alterations. Such cover can be arranged even where work has already begun, however, it is fair to say that optimal latent defects cover is more robust when taken out prior to commencement of a project.
  3. Purchase a wording that requires no proof of negligence in order to recover repair costs
  4. At least be fully aware of the potential cost involved in reassignment and ideally achieve unlimited assignment ability to future owners
  5. Consider additional security for funders and owners
  6. Consider cover to protect contractors and professional teams involved

It is not just the build, design and workmanship that will need to be incorporated into the cover, Mechanical and Electrical Latent Defects wordings can also be arranged with cover periods available for up to 12 years.
Consider the following areas where liability can continue well beyond the date of practical completion:

  • Defective plant or machinery
  • Lifts and escalators
  • Water pumping control systems
  • Electrical distribution systems
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