Why is latent defects insurance not common in the UK?
If the proposition is straightforward, then why is Latent Defects Insurance cover not common in the UK? The answer to this question is quite complex and one which has been exercising the minds of numerous people associated with the construction industry.
Historically, Contract Works Insurance (or Contractors All Risks) has provided an ‘all party’ cover in respect of new works, during the construction phase and the maintenance period, of a new building.
After handover, an owner would have to prove that any damage manifesting itself was the result of negligence on the part of one or more parties to the construction contract.
What are the options?
The options would then be to:
- Negotiate a settlement directly with one or more parties to the construction contract
- Sue them if they denied responsibility
Either way this is likely to be a protracted process with no guarantee of success but this, believe it or not, is what most developers rely on.
They choose to ignore the facts that:
- Existing buildings or construction policies are unlikely to insure the defect
- It is necessary to prove that a particular professional consultant or contractor is legally liable before being able to recover the cost of any repairs
- A building may change hands a number of times and the current financier, owner or tenant is often not aware of the identities and responsibilities of those involved in its construction
- Third party claims typically take 5-7 years to settle
- Third party covers are arranged on an annual basis and may not be renewed
- Third party limits of indemnity may be too low to provide adequate redress
- The third party may no longer be in existence
Construction building defects are rare
The good news is that severe post construction building defects are rare so that the likelihood of suffering is comparatively remote but, unlike a serious fire, which is also a very remote occurrence, building defects are not visible and rarely receive much publicity.
From time to time items appear in newspapers illustrating defects in buildings, such as the design defects in Great Ormond Street Children’s Hospital extension; the cladding failure on BP’s building in London; the nickel sulphide inclusions causing shattering of overhead glass in the Eurostar terminal at Waterloo Station. These are all high profile examples and get headlines. But for each high profile example they are dozens which do not make the headlines.