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Latent defects insurance means you are covered…but only if you have the right policy

Latent defects insurance means you are covered…but only if you have the right policy

Emergency action was needed recently when a specialist property services company approached us to step in where another warranty provider could not. Three separate developments had been hit by contractor insolvency. Whilst latent defects protection had been secured on the original developments, the original warranty provider would not honour the full terms of the contract, citing a right to withdraw from providing cover in this scenario.

Fortunately, our experience and connections enabled us to quickly assess the exact extent of the gap in protection, as well as secure replacement cover from alternative providers.

A challenging landscape for developers

The fact that this could happen in the first place shows how vulnerable property owners and managers can be, even when they think they are fully covered. The challenging times we live in suggest many of those seeking to ensure they could potentially claim on latent defects policies in the future may face similar issues if their policies have not been selected carefully: a recent article in the Financial Times noted that construction firms were failing at the fastest rate in a decade, due to a perfect storm of inflation, construction slowdown, rising costs of materials and manpower, cashflow issues in the supply chain and delays to major government projects.

Insolvency isn’t the only reason developers may need to rely on relevant cover. London’s fire brigade recently attended a building collapse on Chelsea Embankment, a few hundred yards from the site of an earlier, and now notorious, mega-basement collapse in the borough’s Durham Place. Errors in workmanship, incorrect use of materials, misinterpretation of plans, non-compliance with building regulations, insufficient surveys – all of these can cause latent construction defects.

In another recent case, the underwriter denied cover because of apparently minor unclear wording. The policy provided cover only in relation to the specific, registered company named in the policy. An abbreviated version of the company name was taken to refer to a related firm and not the one the claimants needed cover in relation to. Such cases emphasise the importance of a guide through the process who is not only expert, but also impartial: the misnaming here was not even made by the claimants, in this case in which a number of connected companies were involved in construction and initial development, before sale of the insured property.

How to make sure you have the right policy

There is no substitute for experience and specialisation here. Insurance policies are contracts, of course, and all contracts are defined in careful detail, clause by clause.

BuildSafe were able to help in the insolvency case discussed above, because of the expertise of our consultants, who were able to quickly grasp the detailed contractual implications of the warranties in place. Our market knowledge and existing relationships meant we could quickly find alternative provision that delivered our client the exact cover needed.

We also understand that each project is unique. Our aim is to deliver the right, comprehensive cover for the particular circumstances, not one right general solution. Our negotiating power and established trust with providers helps ensure the best outcome in all cases.

Just as importantly, there is no conflict of interest in our independent advice, and our team offers as a single point of contact throughout the warranty process – advising, demystifying and saving you time.

Latent defects insurance checklist

There are a number of ways in which one policy may differ from another, and why understanding the detail of your policy is critical in insuring that it is neither inadequate for your needs, nor likely to be invalid in the face of a future claim. These may include the following:

  • The term of cover can vary – 10 years is the most common but 12 years can be achieved in some circumstances
  • Your cover may or may not commence immediately after completion; some policies require you to go to the contractor during the initial period after construction, when they have more obligation to address issues
  • Each provider will define qualifying defects slightly differently from others
  • Each policy will have its own exclusions, in areas such as demolition and debris removal, contamination cover etc
  • Coverage possibilities generally regarded as optional extras include mechanical and engineering failure, alternative accommodation during needed works, building control services cost and cover for business interruption
  • The amount for which you are covered is often indexed, rising above your initial costs to account for inflation – but whether there is indexing and by how much will vary
  • Price will of course vary also, with providers typically approaching each quote individually, rather than simply looking up the relevant costs

Whilst no-one has a crystal ball, drawing on vast experience makes it significantly less likely that an unanticipated event will not be covered, either by a policy being inadequate or being invalidated. We can help by ensuring you are being asked the right questions, looking for the best value solutions, having options fully explained to you and reminding you of key deadlines, all of which can take the stress out of making an otherwise complex decision.

BuildSafe is one of the UK’s leading providers of latent defects insurance, as well as construction insurance, with over 40 years of experience in the property sector. We are regulated by the Financial Services Authority and accredited by the Council of Mortgage Lenders. For a free, no obligation quote, use our contact page, or get in touch on 020 3701 0422 or via

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