In the construction industry, defects that only become apparent after a project is completed can lead to significant financial and operational challenges. These latent defects, if left unaddressed, can be costly to rectify and may damage the reputation of the developer or contractor.
Latent Defects Insurance helps mitigate the financial risk of addressing these issues, protecting your business from unexpected repair costs while also enhancing the marketability of the property for sale or lease.
What is Latent Defects Insurance?
Latent Defects Insurance (LDI) also known as Decennial Liability Insurance can provide property owners with enhanced cover including 10 years of insurance protection against physical damage arising from an inherent defect.
The security provided by a LDI policy can help to make your building more attractive to investors and accelerate sales.
Having a LDI policy in place also provides your prospective buyers with a greater degree of certainty around build quality, due to the technical quality assurance inspections involved in obtaining the cover.
Though taken out by the developer, the policy is transferred to the owners corporation at practical completion, providing direct access to the insurance product for lot owners. This alleviates the requirement to sue the builder for structural and/or waterproofing defects.
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Frequently Asked Questions
Latent Defects Insurance (LDI), also known as Decennial Liability Insurance (DLI) and other names globally, provides insurance coverage for specific defects that occur during the construction process.
The Resilience Insurance LDI product provides cover for loss from physical damage caused by an inherent defect that occurs and is claimed within 10 years of the completion of insured building work.
An Inherect Defect is any defect or fault in the structural works and/or the envelope of a building resulting from a defect in the design, materials, or workmanship which was only detected at the Certificate of Practical Completion issue date.
LDI typically provides cover for inherent defects occuring in:
- Structural works including all internal and external load-bearing structures essential to the stability or strength of the building
- Envelope includes all works forming part of external walls and roofing of the building
- Areas covered within the waterproofing extension of cover
LDI typically provides cover for the cost of repairing, replacing, and reinforcing the insured structure if an inherent defect is detected and the policy covers it within the insurance period.
It will also typically provide cover for the following, up to the policy limits:
- Interim housing fees and waterproofing
- Removal of debris
- Professional expenses
- Reinstatement costs
Subject to the policy terms and conditions, including any extension or endorsement, LDI Insurance generally excludes:
- Non-structural works, equipment, fixtures and fittings, and external works that are not part of the building envelope
- Failure to repair or maintain as reasonable and normal wear and tear
Residential Developments - Class 2 apartments of all sizes.
Commercial and Industrial Developments - Classes 3,4,5,6,7,8 & 9.
The average cost for the Resilience LDI product is 1.6% of the construction value (including GST).
LDI policies typically have a maximum standard limit of indemnity of $50 million, (higher values can be covered on application). The minimum limit of indemnity for Class 1 buildings is $2 million and $10 million for Class 2.
You will need to apply for and arrange LDI before construction activity begins. We can proceed with obtaining terms if the project is in Early Work stage, however it will be too late if actual construction has commenced.
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Coverforce are proud to provide insurance and risk advice to some of the largest and most reputable developers and builders in Australia. Our specialist team can provide you with further information or an obligation free indicative quote for your upcoming development.
For more information or to speak to one of our brokers about arranging cover, please don't hesitate to reach out to your local office. Alternatively, you can simply fill out the form below and we will get back to you in 1 business day.
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