Latent Defects Insurance

Structural defects in buildings are on the rise. Defects can appear months or years after construction has completed due to poor design, workmanship, or materials, and are a standard exclusion under property policies.

What is Latent Defect Insurance?

Latent defects insurance (LDI) is a type of insurance cover that could be useful to property owners, as it provides first-party protection post-completion for building defects. LDI enhances the leaseability or saleability of the completed building, while providing balance sheet protection.

Latent defects insurance (LDI) provides cover in the event of an inherent defect in the design, workmanship, or materials becoming apparent in the structure or waterproofing envelope of a building resulting in physical loss or damage. It will indemnify you for the cost of the repairs to or replacement of damaged property and/or pay to prevent imminent further damage caused by a defect up to the total sum insured, typically the full reinstatement value. Cover can be arranged for new buildings and significant extensions to or conversions of existing buildings.

The policy is generally available for a period of 10 to 12 years from the date of issue of final certificate of practical completion. The insured can be any party who has an interest in the property (normally the owner or developer) and can be required by funders or incoming tenants with an obligation to repair under the terms of a lease agreement.