Latent Defects Insurance
Latent Defects Insurance is also known as Inherent Defects, Structural Defect, Building Guarantee or Decennial insurance for commercial property.
What is Latent Defect Insurance?
Latent Defects insurance is a long-term insurance covering new buildings against damage or the imminent threat of damage caused by defective design, workmanship and materials in the structure of the building. The structure of the building normally means the foundation, walls, floors, roof, other load-bearing elements, the waterproof envelope and if the building has a basement, it's waterproofing element.
Cover is also available for loss of rent or revenue lost as a result of damage caused by a latent defect. Some insurers now offer Latent Defects insurance for projects retaining existing buildings and for existing buildings including some cover for non-structural components.
Who needs it?
Building owners, developers and leaseholders.
What periods are insurable?
Normally, periods up to 12 years can be insured.
Risk assessment
To give insurance for such long periods, the insurers needs to be confident that the design of the building is sound, the materials used are good quality and that the building has been carefully constructed.
To gain this confidence, insurers employ a technical auditor to approve the design of the building, check the quality of the materials and periodically to monitor the construction process. At practical completion of the building, the technical auditor will certify his satisfaction with the building and the Latent Defects insurance will commence.
Why buy it?
Latent Defects insurance provides long-term protection on a first party basis. There is no need to show that an architect has been negligent or that the building contractor is in breach of its contractual obligations before a claim may be paid. It is the insurer who also assumes the risk that the architect or building contractor does not pay or is uninsured.
A building owner or developer may be required to purchase Latent Defects insurance by its lenders or even by a long-term leaseholder.
