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The importance of Latent Defects Insurance...


What is Latent Defects?

It is the nature of construction projects that faults and defects caused by failures in design, workmanship or materials, may not become apparent or readily detectable (even with the exercise of reasonable care) until many years after completion of the project, long after the end of the defects liability period. Such defects are known as latent defects (as opposed to patent defects which are apparent).

Examples of common latent defects include:

  • Defective basement tanking allowing water penetration.
  • Inadequate wind-posts or wall ties causing movement damage to walls.
  • Under-strength concrete or misplaced reinforcement allowing movement damage to the structure.
  • Inadequate foundations causing subsidence of the building.

On completion of a property the liability for the building, developing or designing of the property does not cease, and Commercial latent defects insurance is designed to transfer the ongoing defect risk to an Insurer, rather than being retained by the parties involved.  In the event of a defect causing damage, then this makes for a much easier and efficient resolution of claims, and in an event that Latent Defects cover is in force, then this matter should be resolved by Insurers, without the need for legal action.

Case Study Example

A contractor is suing a piling specialist over major defects on a massive wine warehouse in South West England, which the contractor says could cost it more than £40m.

The contractor claims the piling subcontractor “failed to exercise the appropriate standards of skill and care in undertaking their design and installation work” of the piling for the £40m wine warehouse, which was built in 2008.The 860,000 sq ft facility was designed and built for major wine importer.

In March 2009, months after the wine importer had moved into the building, cracks in the concrete floor slab were found. These were initially attributed to normal shrinkage, but in January 2010 there were differences in the floor level of up to 48mm.The contractor’s investigation into the cause of the cracking identified that a number of the piles had not been driven deep enough. It said that it would take 120 weeks to conduct “very significant remedial works” to fix the problem, with large areas of the warehouse floor and piles beneath needing to be replaced.

The contractor said it had already spent £2m investigating the problem, with the total cost of the remedial work yet to be determined.

It also said it had not been paid £606,610 by the owners of the property because of the defects in the piling. It claims the piling sub-contractor should reimburse it for these losses, which it has had to bear directly.

The contractor is also suing the piling sub-contractor for an as-yet undetermined amount, which arises from potential damages it faces from legal action following the problems with the warehouse.

The contractor is facing legal action from the wine importer over losses stemming from the warehouse. The wine importer claims that it may need to relocate from the warehouse, which it estimates could cost up to £41m.

What to do next 

We have access to specialist insurers with exclusive arrangements for this type of protection. This enables us to negotiate policies on a flexible basis to specifically meet the needs of clients.

If you are interested in discussing Commercial Latent Defects insurance and how this could assist you in owning or developing property, then please contact us on 01789 761 670.

Call 01789 761670 

Web: www.morrisoninsurance.co.uk

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