Client Bulletin – Product Information
LATENT (STRUCTURAL) DEFECTS INSURANCE
Version: December 2005 CB/GEN/007
History
Latent Defects Insurance (sometimes referred to as Structural Defects) was introduced to this country by French insurers during the 1980s.
The main purpo of the cover is to allow the owner of a new building to rest assured that, should their investment suffer from damage caud by a defect in design, workmanship or materials, then they have in place a first party insurance to remedy that defect.
If the proposition is as straightforward as all that then why is this cover not very 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 pha and the maintenance period, of a new building. After handover an owner would have to prove that any damage manifesting itlf was the result of negligence on the part of one or more parties to the construction contract.
The options would then be to:
negotiate a ttlement directly with one or more of the parties to the construction contract sue them if they denied liability
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 choo to ignore the facts that :
third party claims typically take 5-7 years to ttle
third party covers are arranged on an annual basis and may not be renewed
third party limits of indemnity may be too low to处女金牛
provide adequate redress
the third party may no longer be in existence.
The good news is that vere post construction building defects are rare so that the likelihood of suffering is comparatively remote but, unlike a rious 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.
The are high profile examples and ll newspapers. But for each high profile example there are dozens which do not make the headlines.
There were few memorable examples of high alumina cement but many instances of its effects. Whereas its effects may not have been caud by negligence, becau its u could be defended b
y the plea of state of knowledge within the industry being limited at that time, its effects would undoubtedly be covered, under a Latent Defects policy, as a defective material - with damage manifesting itlf after the construction period.
No one knows when the next high alumina cement type product will occur!
How Cover is Arranged
To obtain terms for a new building underwriters will want to know details of:
a) the Insured
b) the new building and
c) the parties to the contract.
The form the physical rating features.
In addition the following factors affect the premium rating level :
a) the period of cover required (the original French cover was for 10 years, hence the term
‘decenniel’, but 12 years is now far more common in UK - and costs just a little more)
b) the level of deductible for which the Insured opts - 10,000 is the usual minimum for buildings
up to 1m reinstatement value but for larger buildings anything up to 1m can be provided
c) the method of maintaining an up to date sum insured over the period of cover - this can either
be done by reviewing the sum insured at each anniversary and paying pro rata additional premiums or opting for a fixed rate 5% per annum compound and paying for that level of increa at the outt.
Simple proposal forms are available to collect all of this information
The factors all affect the rate charged which will typically fall between 5 and 10 per 1,000 sum insured - the sum insured being the reinstatement cost of the completed building - this should include an amount in respect of professional fees, debris removal and demolition costs.
The Technical Audit Function
In addition to the above premium, underwriters are likely to require a deposit premium to cover the cost of an audit of the design and construction. The purpo of this audit is to try to prevent damage which may detected by an extra pair of eyes employed specifically for that purpo.
It 阴超怎么检查
can happen that the original design team is too clo to the action an百合种球怎么种植
d can miss the obvious. Examples which have been spotted by auditors have included:
unrestrained columns
poor reinforcement placement in a floor slab
inadequate reinforcement specified
abnce of wall ties
lack of movement joints
cross bracing moved by architect
gable end drainage channel omitted
out of quence work leading to inadequate flashing detail
inadequate fixing of facade to structure
roof membrane laid incorrectly
No澳门历史资料
t only have the saved insurers from potential claims but they have saved the building owner from considerable upheaval and discontent from their tenants - not to mention the deductible! Such errors can be put right by the builder prior to handover.
The team of engineers ud for this purpo tend to be very experienced structural engineers who have been carrying out technical audits for a number of years.
The technical auditor’s role is solely to try to prevent a claim occurring and not to cau disagreement. His funct婴儿发烧症状
ion is to confirm to underwriters that to the best of his knowledge the building does not prent any known defect in design or construction. If he is unhappy with any feature he will try and resolve the problem with the propor’s nominated reprentative on site.
If this is not possible the matter will be referred back to the underwriter to resolve with the propor. This tends to be very rare becau both the propor and the underwriter have the same aim - a buil
ding with no known defects and if our technical auditor has identified a potential problem, the propor will normally want it resolved, rather than run the risk of a defect, either in design or construction, which has been identified.
The cost of the audit varies from project to project and is affected by a number of factors. Except on small projects it is usually less than 25% of the premium.
The Policy
Once the audit has been completed and practical completion has been achieved a formal offer of cover is made. This offer usually reiterates the terms indicated at the outt and gives the propor 90 days to decide whether or not to proceed.
The policy, once issued, is then freely assignable to any party acquiring an insurable interest in the building, during the currency of the policy.
A full specimen policy wording is available on request but the main elements t out below.
The cover is for
a) structural defects
b) ingress of water
c) subsidence landslip or heave
d) threat of imminent collap requiring immediate remedial works to prevent damage
caud by a defect in design workmanship or materials but not discovered before the inception of the cover
The main exclusions specific to Latent Defects Insurance are
a) the deductible
b) damage discovered outside the period of insurance
c) anticipated or planned for movement, ttlement, shrinkage or expansion
d) abnormal u or overloading
e) wear and tear or inadequate maintenance
f) change in colour or ageing process
g) the contractor’s contractual obligations for snagging
h) damage to paint and other surface coatings
The basis of ttlement
The cover is intended to operate on a reinstatement basis including the cost of remedial work to prevent further damage.
It includes
a) professional fees
b) removal of debris
c) dismantling, moving, removing, storing, returning and re-erecting property belonging to the
Insured
d) 倍感欣慰
; costs of compliance with public authority
Optional Covers
Conquential Loss (Business Interruption) Covers
Cover can be arranged for landlords or tenants of buildings for which a material damage latent defects cover is provided against:
a) loss of rent receivable
b) loss of gross profit or revenue
c) incread cost of working from alternative premis
Claims
Examples of the types of claim -
a) defectively designed floor slabs allowing movement and conquent
damage to floors and walls
b) omission of windposts allowing damage to the walls
c) subsidence causing damage to the walls
d) defective cladding )
) All
e) failure of bament tanking ) allowing
) water
f) defective roofing ) to
) enter
g) failure of rainscreen ) the
) building
h) poorly fitting windows )
How Rowlands & Hames can assist you
Rowlands & Hames can obtain no-obligation quotations from a number of insurers.
It is important that quotations are obtained prior to completion of any building, rather than once occupied, as any defects need to be resolved.
Plea contact your usual Rowlands & Hames Account Director.
Rowlands & Hames take this opportunity to thank Norwich Union for its assistance in preparing this bulletin. Not all policies offer equivalent coverage.
Plea contact Rowlands & Hames for further information.
Rowlands & Hames Insurance Brokers Ltd.
277 Dickson Road, Blackpool, Lancashire, FY1 2LG
Tel: 01253 594211 Fax: 01253 358481 Email: uk
Authorid and regulated by the Financial Services Authority
