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The who, what and why of latent defects insurance

The need to protect a construction project does not end when the building is completed. There are many reasons why as the owner or developer of a building you might still need to consider having the development insured after completion.

Who is a latent defect policy for?

Latent defects insurance offers owners and developers, coverage from damages arising from an inherent or latent defect in the building.

What does latent defects insurance cover?

If there is any damage to the building as a consequence of an inherent defect in the design, workmanship or materials in the structure of your building, latent defects insurance can provide you with cover. This cover will normally include the full sum to repair or replace the damage, and to help prevent any further damage. Cover is generally available for 10 or 12 years after the buildings practical completion. It is also assignable to new purchasers of the property if it is sold during the 10 or 12 year period. In addition, some tenants require that a building has a latent defect policy in place before they will take on a lease.

Why do you need a latent defects policy?

You might think that because your contractor or advisers have professional indemnity insurance, or that there are collateral warranties in place, you do not need a latent defects policy as well.

Professional indemnity can help cover your costs if the defect is caused by professional negligence, but not poor workmanship or materials. Further complications could be a financial limit on their professional indemnity policy, limiting any pay out in the event of a claim. You would also have to prove their negligence caused the defect. Additionally, collateral warranties that are in place are very rarely tested and could have expired, depending on when the defect occurs.

Lastly, most defects tend to become evident a few years after the development has been completed, so it could be possible, due to economic circumstances, that the contractor is no longer in business when you need to make a claim.

With latent defects insurance, insurers will deal with the claim on your behalf and decide whether or not to pursue any third parties afterwards, which would not affect the claims process.

At Marsh Commercial, we want to help you look to the future, and consider your risk exposure. We understand how valuable a latent defect policy can be, and believe that it is worth consideration, providing you with protection for many years after a project has been completed.

You can find out more about latent defects and other construction insurance options here

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