Latent Defects Insurance

Latent Defects Insurance provides long-term cover for hidden structural defects in new or refurbished buildings that may not be immediately apparent at completion.

Often referred to as a structural warranty or building defects insurance, this cover is typically arranged for development and construction projects to address inherent defects in design, workmanship, or materials.

Rowlands & Hames currently arranges latent defects insurance for commercial properties only.

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What Is Latent Defects Insurance?

Latent Defects Insurance is a long-term, first-party insurance policy designed to respond where a building suffers damage as a result of an inherent defect in its design, workmanship, or materials. These defects are typically hidden at the point of practical completion and may only become apparent some time after the building has been occupied or brought into use.

Unlike collateral warranties or reliance on the professional indemnity insurance of contractors and consultants, latent defects insurance provides direct protection to the insured party. It is intended to operate without the need to establish fault or negligence, allowing claims to be settled on the basis that structural damage has occurred as defined within the policy.

Cover is usually arranged for a fixed period, commonly ten or twelve years, and may be assigned to future owners, tenants, or funders with an insurable interest in the building. For this reason, latent defects insurance is often considered an important risk management tool for commercial developments, particularly where long-term asset value and transferability are key considerations.

What Does Latent Defects Insurance Cover?

Latent Defects Insurance is designed to respond where a building suffers damage caused by an inherent defect in its design, workmanship, or materials that was not apparent at the time of completion. The focus of the cover is on structural damage, rather than cosmetic issues or routine maintenance.

Where a covered defect results in damage to the structure of the building, the policy is intended to operate on a reinstatement basis, providing funding for remedial works necessary to repair the damage and prevent further deterioration. This allows defects to be addressed without the need to pursue claims against contractors, designers, or other members of the professional team.

Cover typically extends to the structural elements of a building, which may include foundations, load-bearing walls, floors, roofs, and other components considered integral to the building’s structural integrity. In addition, policies can respond where defects lead to issues such as water ingress, subsidence, heave, or the risk of imminent structural failure requiring immediate remedial action.

Latent defects insurance is structured as a first-party policy, meaning the insured does not need to prove fault or negligence for a claim to be considered. This can result in a more straightforward and timely claims process compared to relying on collateral warranties or professional indemnity insurance, particularly where defects arise many years after construction.

What Types of Buildings Can Be Covered?

Latent Defects Insurance can be arranged for a range of building types and development projects, with cover structured around the nature of the build, the intended use of the property, and the construction methods involved. In practice, the approach to underwriting and the scope of cover can vary depending on whether the project is commercial or residential.

Rowlands & Hames currently provides quotations for commercial properties only. This typically includes new-build commercial developments, commercial conversions, and mixed-use projects where the primary risk is commercial. In some cases, cover may also be considered for completed commercial buildings, depending on the circumstances and the underwriting approach.

For residential developments — including new homes, social housing, completed housing, and self-build projects — structural warranty solutions are available in the wider market. Where appropriate, Rowlands & Hames may be able to assist by directing enquiries to a suitable provider.

If you are unsure whether a project meets commercial criteria, we can review the basic development details and advise on the most appropriate route.

How Is Latent Defects Insurance Arranged?

Latent Defects Insurance is typically arranged during the design and construction phase of a project, although in some circumstances, cover may be considered for completed buildings. The process is designed to allow insurers to assess the risk presented by the development before committing to long-term cover.

To assess a project, insurers typically require information on the developer or building owner, the building’s nature and value, and the parties involved in the design and construction. These details help underwriters assess the project’s complexity and potential exposure to structural defects.

The policy term is usually fixed for a defined period, most commonly ten or twelve years, and cover is intended to operate for the full duration without cancellation. The policy is typically issued once practical completion has been achieved and the insurer is satisfied that the building has been constructed in line with approved designs and specifications.

Premiums are generally payable at inception and are based on the reinstatement cost of the completed building, rather than the contract value alone. The policy structure, including deductibles and indexation, will depend on the project and underwriting requirements.

Technical Audit and Risk Assessment

A technical audit is often required when arranging latent defects insurance. The purpose is to provide independent oversight of design and construction quality throughout the build, helping insurers assess whether the project meets the required standard for long-term cover.

The audit is carried out by experienced engineers appointed for this purpose and is intended to identify potential issues early, while they can still be corrected before handover. This benefits both insurers and building owners by reducing the likelihood of defects emerging after completion.

During the course of the project, the auditor will review key aspects of the build against approved drawings and agreed specifications and will raise queries where clarification or remedial action is needed. Where concerns cannot be resolved on site, they may be referred back to the underwriter for review.

At practical completion, once the auditor is satisfied that the building has been constructed to an appropriate standard and in line with the agreed documentation, they will issue confirmation to support the completion of cover.

What Does the Latent Defects Policy Cover?

Once the technical audit is complete and the building has reached practical completion, cover is usually confirmed, and the policy is issued for the agreed period. Latent defects insurance is intended to respond to structural damage arising from an inherent defect, with settlement made on a reinstatement basis to fund appropriate remedial works and prevent further damage.

As with any specialist policy, it is crucial to distinguish between structural defects and issues outside the scope of cover. Latent defects insurance is not designed to replace routine maintenance, address cosmetic defects, or cover damage arising from normal wear and tear over time. It will also not respond where damage is discovered outside the period of insurance, or where movement, settlement, shrinkage, or expansion is expected or planned for as part of the building’s performance.

In addition, the cover is not intended to meet contractual snagging obligations or minor finishing defects, and it generally excludes damage caused by abnormal use, overloading, or inadequate maintenance. Specific surface-level issues, such as paintwork deterioration or changes in appearance due to ageing, are usually outside the scope.

Optional Covers and Additional Benefits

Latent defects insurance can be structured to reflect the needs of different stakeholders and building types, with optional extensions available where appropriate. These enhancements are often considered where there is a requirement to protect income, address specific construction features, or provide additional comfort to parties involved in the design and build process.

For landlords and tenants, cover may be extended to include consequential loss, such as loss of rent receivable or loss of income, as well as certain additional expenses that may arise if the building cannot be used as intended following insured damage.

Depending on the project and insurer appetite, cover may also be available for elements such as the waterproofing envelope above and below ground, annual indexation of the sum insured and excess, or phased developments where buildings are completed in stages. In some cases, policies can be structured to accommodate buildings already under construction or recently completed, and may incorporate retained or existing structures as part of a wider development.

Where required, additional options can include coverage for specific non-structural components, such as mechanical and electrical installations, or for component failure, subject to underwriting and the policy structure. Some policies may also offer a waiver of subrogation against named parties involved in the design and construction process, which can be helpful in collaborative project arrangements.

Latent Defects Insurance FAQs

Is Latent Defects Insurance the same as a structural warranty?

Latent Defects Insurance is commonly referred to as a structural warranty or building defects insurance. It is designed to respond to structural damage arising from an inherent defect in design, workmanship, or materials that was not apparent at completion.

Who can be insured under a latent defects policy?

A latent defects policy can be arranged for parties with an insurable interest in the building, such as the developer, building owner, landlord, tenant, or funder. Policies are often assignable during the term, which can be helpful where the asset may be sold or refinanced.

When should latent defects insurance be arranged?

Latent defects insurance is usually arranged during the design and construction phase so insurers can assess the project before practical completion. In some cases, cover may be considered for buildings already under construction or recently completed, depending on the circumstances.

What is the difference between latent defects insurance and collateral warranties?

Collateral warranties rely on the ongoing solvency and professional indemnity insurance of the firms providing them, and claims can involve establishing responsibility. Latent defects insurance is structured as a first-party policy, intended to respond to defined structural damage without the same reliance on third-party recovery routes.

How long does latent defects insurance last?

Policy periods are commonly ten or twelve years, depending on the insurer and the project requirements.

Why is a technical audit often required?

Technical audits provide independent oversight of design and construction quality during the build. They help identify potential issues early and support the insurer’s assessment of whether the project meets the standard required for long-term cover.

Is latent defects insurance available for residential projects?

Rowlands & Hames currently provides quotations for commercial properties only. Structural warranty solutions are available in the wider market for residential developments, and we may be able to direct enquiries to an appropriate provider where needed.

What types of issues are not covered?

Latent defects insurance is intended to respond to structural damage arising from inherent defects. It is not designed to cover routine maintenance, cosmetic issues, normal wear and tear, or minor snagging items.

Policy limits and exclusions may apply, please see policy wording for full terms and conditions.

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Mike Watkinson Dip CII

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