Latent Defects Insurance Cost
Latent Defects Insurance Cost
As a result of the challenging set of economic headwinds developers are facing, there has been a sharpened focus on not only mitigating the costs but also minimising the risks associated with the financial stability of both main and sub-contractors.
Many developers search for ‘insolvency protection’ as part of their latent defect policy and while there are a small number of providers who will offer this, assuming the professional team meets a strict criteria. Most developers and housing association partners will opt for a performance bond and/or hold some funds on retention.
Once the scheme reaches practical completion and the LDI policy incepts, the developer and HA partner benefit from the policy ‘stepping-in’ in the event the main contractor isn’t able to fulfil their defects liability period obligations as a result of insolvency.
Given the tumultuous state of the construction industry this layer of protection is now of great comfort for those at an ownership level of newly completed schemes and have become a ‘must have’ within their risk mitigation strategy.
Now looks to be an opportune moment to mitigate project risk by evaluating how to address defects giving rise to a claim post completion, especially with one eye on the rising number of contactor insolvencies in the market – This is applicable for both current projects and your development pipeline.
The J3 advisory team are working hard alongside our insurer partners to assist clients with insurance solutions such as Latent Defects Insurance (LDI) amongst other mandatory policies, including Delay in Start Up (DSU) coverage as well as owner’s or developer’s Contractors All Risks (CAR) policies.
To speak to a member of the J3 advisory team about your next scheme and overall programme, call us on 020 3096 0718.
Get an indication.
Have questions? Call 020 3096 0718
* This calculation is to be used for indicative quote purposes ONLY and underwriters reserve their rights to amend the Premiums, Terms and Conditions
Latent Defects Insurance: Frequently Asked Questions
Latent Defects Insurance VS Collateral Warranties
Latent defects insurance (LDI) serves as an added layer of protection in cases of contractor insolvency, and can also step in where collateral warranties may not be available. However, it’s important to note that while it provides crucial coverage, it should not be viewed as a direct replacement for collateral warranties.
Is latent defects insurance still effective if the contractor is insolvent?
The latent defects policy is taken out at the start of the project and does not need to be renewed annually – As a result, it is unaffected by the subsequent insolvency of any member of the construction team. With professional indemnity insurance (which the construction team would generally be required to maintain in terms of a collateral warranty) has to be renewed annually, and will provide no protection if it has not been renewed at the point a claim is made.
What is the typical duration of a Latent Defects Insurance policy?
Most Latent Defects Insurance policies have a standard term of 10-12 years from the building’s practical completion.
Do I need to establish fault or liability to make a claim under Latent Defects Insurance?
No, LDI is a first-party policy, which means there is no requirement for the policyholder to establish fault, negligence, or liability of the parties involved in the construction contract.
Latent Defects Insurance: Mitigating the cost of contractor insolvencies
As a result of the challenging set of economic headwinds developers are facing, there has been a sharpened focus on not only mitigating the costs but also minimising the risks associated with the financial stability of both main and sub-contractors.
Many developers search for ‘insolvency protection’ as part of their latent defect policy and while there are a small number of providers who will offer this, assuming the professional team meets a strict criteria. Most developers and housing association partners will opt for a performance bond and/or hold some funds on retention.
Once the scheme reaches practical completion and the LDI policy incepts, the developer and HA partner benefit from the policy ‘stepping-in’ in the event the main contractor isn’t able to fulfil their defects liability period obligations as a result of insolvency.
Given the tumultuous state of the construction industry this layer of protection is now of great comfort for those at an ownership level of newly completed schemes and have become a ‘must have’ within their risk mitigation strategy.
Now looks to be an opportune moment to mitigate project risk by evaluating how to address defects giving rise to a claim post completion, especially with one eye on the rising number of contactor insolvencies in the market – This is applicable for both current projects and your development pipeline.
The J3 advisory team are working hard alongside our insurer partners to assist clients with insurance solutions such as Latent Defects Insurance (LDI) amongst other mandatory policies, including Delay in Start Up (DSU) coverage as well as owner’s or developer’s Contractors All Risks (CAR) policies.
To speak to a member of the J3 advisory team about your next scheme and overall programme, call us on 020 3096 0718.
Frequently Asked Questions
Latent Defects Insurance VS Collateral Warranties
Latent defects insurance (LDI) serves as an added layer of protection in cases of contractor insolvency, and can also step in where collateral warranties may not be available. However, it’s important to note that while it provides crucial coverage, it should not be viewed as a direct replacement for collateral warranties.
Is latent defects insurance still effective if the contractor is insolvent?
The latent defects policy is taken out at the start of the project and does not need to be renewed annually – As a result, it is unaffected by the subsequent insolvency of any member of the construction team. With professional indemnity insurance (which the construction team would generally be required to maintain in terms of a collateral warranty) has to be renewed annually, and will provide no protection if it has not been renewed at the point a claim is made.
What is the typical duration of a Latent Defects Insurance policy?
Most Latent Defects Insurance policies have a standard term of 10-12 years from the building’s practical completion.
Do I need to establish fault or liability to make a claim under Latent Defects Insurance?
No, LDI is a first-party policy, which means there is no requirement for the policyholder to establish fault, negligence, or liability of the parties involved in the construction contract.
Get an indication.
Have questions? Call 020 3096 0718