Guide to latent defects insurance

• What are latent defects?
• What is latent defects insurance?
• Who needs latent defects insurance?
• How much does latent defects insurance cost?
• How does latent defects insurance work?
• Is latent defects insurance the same as buildings insurance?
• Is latent defects insurance the same as structural warranty insurance?
• Does professional indemnity insurance cover latent defects?
• What happens if the contractor or builder goes bust before a claim is made?

Sometimes, it can take a while for problems to become evident. When it comes to structural issues, that delay can be devastating, resulting in serious flaws including partial or total collapse of a building. But that’s where latent defects insurance comes in. Here, we explore what these policies cover and how they can help protect a homebuyers’ investment.

What are latent defects?

Latent defects are problems with the structure of a building that haven’t yet been discovered. In other words, they’re hidden faults which aren’t always detectable through building surveys.

What causes a latent defect?

Latent defects can be caused by any number of factors to do with the structure of a building. For instance, the fault could be a result of design, build, materials or even the workmanship. In essence, a latent defect can be caused at any point during the construction process. They can also take months or even years to appear.

What is latent defects insurance?

Latent defects insurance covers the cost of repairing structural defects and pays to rebuild a structure if it is uninhabitable or not considered fit for purpose.

Policies can also provide other covers, but this will depend on what you agree with your insurer, for example:

• Demolition and debris removal
• Mechanical and electrical faults
• Alternative accommodation for the property’s inhabitants
• Building control services
• Contamination cover

Latent defects policies are usually valid for 10 or 12 years after a building has been completed. Policies can also be transferred or ‘reassigned’ to other people, for instance if a new-build home is sold after five years, the latent defects policy can be assigned to the buyer.

What isn’t covered by a latent defect insurance policy?

Latent defects insurance only covers the structural integrity of a building and its load-bearing capability. It will not cover issues with the fixtures and fittings, plumbing, the heating system, or anything else other than the materials used to build the structure of the property.

Who needs latent defects insurance?

Latent defects is particularly suitable for new-build properties, extensions, and conversions of commercial buildings to residential use where it may be some time before defects become apparent. Typically, these policies apply to anyone building or selling commercial space or residential new builds, including:

• Property developers
• Construction firms
• Independent contractors
• Architects
• Self-builders

Do private property owners need latent defect insurance?

Yes, if you’ve carried out work to your home, such as an extension, then you should consider latent defects insurance. If you go on to sell your home, you could find the buyer’s mortgage lender insists that a policy is in place as this will protect their investment in case a problem appears in the future.

Self-builders should also take out a latent defects policy for this same reason.

How much does latent defects insurance cost?

This really depends on a range of factors based on the specific circumstances surrounding the policy, for example:

• the rebuild value of the property (the sum insured);
• the type of structure the policy is for;
• how the building is constructed;
• what materials are being used in construction;
• the number of buildings the policy applies to (is it a national developer, or a private self-build).
• The experience of the Contractor & track record of the developer

How does latent defects insurance work?

Latent defects insurance is different from many other insurance products, in the sense that there is no need to establish who is at fault for a claim to be successful. The policy protects the property owner against latent defects that cause major damage to the structure of their property or cause it to become uninhabitable.

If you need to make a claim on a latent defects insurance policy, it’s generally quicker to activate, and action can be taken to fix any damage. Usually, there are no lengthy court proceedings and policyholders don’t need to prove who is at fault, evidence of the defect is enough.

Is latent defects insurance the same as buildings insurance?

A latent defects policy is not the same as buildings insurance.

Unlike buildings insurance, latent defects does not cover pipes or other permanent fixtures and fittings like bathroom suites and fitted kitchens. On the whole, buildings insurance covers specific insured events such as fire, flood, vandalism, and subsidence, which are not considered to be a defect with the structure of the property. The two policies protect property from losses sustained by differing causes.

Is latent defects insurance the same as structural warranty insurance?

Yes, latent defects insurance is sometimes known as structural guarantees or structural warranty insurance. An NHBC guarantee is a form of latent defects insurance.

Does professional indemnity insurance cover latent defects?

Professional indemnity(PI) policies (also called errors and omissions insurance) protect those who work in professional services (engineers, architects, surveyors etc) against errors and omissions they are alleged to have made which has resulted in a latent defect causing the property to be uninhabitable. This could be related to the design of the building, or the materials specified, amongst other things.

Importantly though, professional indemnity is a defence policy which protects the policyholder, so the property owner would need to pursue the policyholder and prove negligence if they were to make a successful claim. Latent defects insurance will cover the cost of remediating the defect without needing to prove liability before paying out. The insurer may then choose to pursue the professional indemnity policyholder if they can prove they were liable for the issue.

What happens if the contractor or builder goes bust before a claim is made?

A claim will still be valid even if the contractor is no longer trading as latent defect insurance policies cover the building and the property owner.

Do I need a latent defects insurance policy?

Latent defects insurance is essential for businesses and contractors who work within the residential construction industry. It can also provide essential protection if you’re a homeowner who has undertaken a self-build or even added an extension to an existing property.

If you are looking to sell a property that has been built in the last 10 years, the buyers’ mortgage provider will normally request that latent defects insurance is in place, so as a seller you may run into difficulty if you do not have the right cover.

For more information about how a latent defects insurance policy can benefit you, call a member of the team at Alan Boswell Group on 01603 649650.