Latent defects Insurance is an essential policy for anyone working on construction projects. It offers protection against hidden structural defects that may emerge after construction is completed. These defects tend to be hidden, which means that you can’t see them to fix issues before the project ends. Instead, to safeguard against such hidden imperfections, property owners and developers rely upon Latent Defects Insurance. But what is this type of insurance and what does it cover?
This guide covers everything you need to know about Latent Defects Insurance, including coverage, exclusions, and liability period. It will help you to make an informed decision about whether you need a Latent Defects Insurance policy to make sure your work is well-protected for the long term.
What is Latent Defects Insurance?
Latent Defects Insurance can also be referred to as Latent Defects Warranty or Structural Warranty. It is an insurance policy specific to the construction industry and is designed to protect property owners and developers against unforeseen defects that emerge in a building or structure after its completion. These defects are hidden during the construction phase and only become apparent as the property is used.
Having a Latent Defects Insurance policy provides financial protection for the cost of any repair or rectification caused by such defects.
Who Buys Latent Defects Insurance?
This type of insurance is a specialised policy specific to the construction industry. Property developers, builders, and contractors usually hold this policy for new build projects or large-scale refurbishments. Owners of new build developments should have Latent Defect Insurance as it is usually a mortgage requirement for owners taking mortgages on new build properties. It reassures the lenders that the building’s structural integrity is protected.
What Does It Cover?
It is important to understand that Latent Defects Insurance only covers structural issues that affect the stability and safety of the building. This can include issues with the foundation, load-bearing walls, roofing, and flooring. The policy covers the cost of repairs or rectification of such defects, including any fees and legal expenses.
Other construction-specific insurance policies can cover defects such as plumbing and electrics. But these are separate policies and are not included in a Latent Defects policy.
What Does It Not Cover?
Defects that are caused by poor workmanship, normal wear and tear, or lack of maintenance, are NOT covered by this policy. This is because Latent Defects insurance only covers structural issues, so does not include cosmetic or other problems.
Moreover, defects that were known or should have been known at the time of purchasing the insurance are not covered either. So conducting thorough inspections and assessments is essential for property owners and developers before taking out insurance.
Does Building Insurance Cover Latent Defects?
Traditional building insurance, such as buildings and contents insurance, does not cover latent defects. You will require a specific Latent Defect policy for this instead.
Building insurance protects against risks of fire, theft, and damage. It does not cover issues with the property’s design, construction, or structure that may arise over time.
How Long Are You Liable for Latent Defects?
Although a Latent Defects Insurance policy may offer coverage for a specific number of years, a builder or developer is only liable for defects for up to 6 years. In the UK, section 14A of the Limitation Act 1980 sets out the time limits for bringing legal claims for construction work, including latent defects.
How Much Does Latent Defects Insurance Cost?
Like other construction-specific insurance policies, latent defects premiums can be a single one-off payment or annual payments. Your policy should be unique to your project or building, so the cost to you will vary.
For example, the size, type, and number of buildings involved in your development will considerably increase your premium if you are working on a large site. The type of construction methods used and the experience of the contractors also plays a factor. As does the final rebuild cost of the property.
Factors that affect the cost of Latent Defects Insurance:
- Number, size, and type of building/s
- Experience level of main contractor/developer
- Construction methods and materials
- Rebuild value of the property (sum insured)
Taking out a policy after work has started will also significantly increase the cost of Latent Defects Insurance. So be sure to arrange cover before your project begins.
How To Arrange Latent Defect Insurance
If you’re looking to arrange Latent Defect Insurance to protect your build, our team at Construction Insure can help.
As specialist insurance brokers in the construction industry, we have years of industry-specific experience to help arrange an insurance quote that is right for you.
Contact our team of specialists for a free, no-obligation quote today.