SI. 9 and Insurance | Better Latent than never?

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25 February 2015

SI.9 and Insurance | Better Latent than Never?

One of the key criticisms of SI. 9 is that it affords no better protection to the consumer who may encounter a difficulty with a building defect. Building owners still have no recourse other than to pursue the builder and Assigned Certifier responsible through the Courts with no guarantee of success, which is both costly and time-consuming.

Fixing the problem relies on proving negligence by the builder and Assigned Certifier: the builder may have recourse to a structural guarantee or the Assigned Certifier may have a Professional Indemnity insurance policy but the home-buyer has no rights to make a direct claim on them. A better system that operates in other countries (often mandatory with a mortgage policy) is a Latent Defects Insurance policy for the direct benefit of the buyer.

1. Latent Defects Insurance:

Latent Defects Insurance (LDI) is a form of insurance taken out for new-build premises to provide cover for the owner in the event of an inherent defect in the design, workmanship or materials becoming apparent after completion – usually for ten years. It offers a fairly straightforward and affordable direct means of redress for the building owner and it would be commonplace for new construction in many EU states. It was a Red Line issue for the professional stakeholder groups negotiating SI. 9 with the Department of the Environment but it was not made mandatory when SI. 9 legislation was introduced.

To date it appears that there is very little interest in the insurance market either nationally or within the EU at present to provide such insurance to the Irish construction sector.

2. Professional Indemnity Insurance for Employees:

A further insurance problem has arisen with SI. 9 in the event that an employee, who acted as an Assigned Certifier , leaves their employment or where the company that employed them goes bankrupt or winds-down. Where an Assigned Certifier employee finds themselves, for whatever reason, not covered by their employer’s Professional Indemnity policy they will be held personally liable for any loss or damage incurred for buildings where they acted as certifier. The term for this is “employee’s liability overhang” and for this reason most certifiers will be principals or owners of companies, not employees.

It appears that the professional bodies are examining an insurance product for their members who are employees and act as Assigned Certifiers in such cases. However such a scheme comes with many concerns:

  • Once you had a policy you would have to maintain the cover until run-off after retirement;
  • If the PI insurance was linked to  professional membership Assigned Certifiers would also be obliged to maintain their membership of the professional organisation until run-off after retirement;
  • The system would be funded by a levy on membership which is likely to be challenged by those members who do not wish to take on the roles of Design or Assigned Certifier
  • As the system is based on cover for employees it is likely to be challenged by those members who are sole traders
  • Such insurance policies would have to be held by the professional groups involved and this would expose them to enormous risk in the event of substantial claims.

Latent Defects Insurance could prove attractive to the professional organisations as potential revenue streams but there must be wider concerns that would suggest it is inappropriate and potentially reckless for membership organisations to involve themselves in commercial activities such as latent defects insurance.

Other posts of interest:

PII Insurance increase under SI.9 with no cover for pyrite? 

S.I. 9 and Insurance Claims: Deirdre Lennon MRIAI

“The insurance will sort it out…” 

What is Latent Defects Insurance and how much does it cost? 

What is PI Insurance?

8 Questions for Professional Insurer

1 thought on “SI. 9 and Insurance | Better Latent than never?

  1. Michael O'Neill

    1. What “run-off after retirement”? As far as I am aware, the liability is eternal – the PI cover will need to be extended to the death of the Certifier. Given the onerous nature of the liability, there may even be a claim on the estate of the deceased. This suggests an eternal policy – please somebody prove me wrong on this, but this is what I was referring to in an earlier comment when I suggested that Certifiers should not be hounded into their graves.

    2. Latent Defects in structures and finishes and components can only be proven to have been latent at the time of visual inspection by a full photographic and/or video record on the date or dates of inspection. When it becomes manifest is too late to photograph it because it is then Patent, not Latent. This is a significant cost. Think of the kind of exercise done for a Lessor just to establish normal wear and tear before letting a building and the Schedule of Dilapidations performed just before the termination or renewal. I think the level of survey information required to give peace of mind to the Assigned Certifier’s insurer would exceed that which a full maintaining and repairing lease would require.

    3. Latent Defects in services can only be proven by a full photographic and/or video record of the services installations and routes by a commissioning test and certificate for each system as well as weld tests for all joints. How practical is that, if there is interstitial routing and relatively inaccessible joints in ducts. Ducts are designed to give reasonable access to valves, rodding eyes and meters, not full access for the full length of the service run. I don’t know if this can be adequately assessed but the level of inspection and records will vastly exceed anything we do today on mixed use 4-

    4. What happens if everything is done correctly by everyone involved, but a defect shows up on a neighbouring property through no lack of professionalism on the part of the Design Team, Consultants OR the Contractor. The New Building may be in absolute compliance (cough!) but the adjoining property is damaged. There is no Professional fault or negligence, therefore P.I. cover cannot be invoked There is no defect, latent or patent, so any kind of Defects Liability cover will not be subject to a claim. This kind of issue is especially likely when building adjoining to a historical property the fabric of which is in poor condition. There is a solution and it is based in Insurance. I was involved in a project in Temple Bar where the consultant acting for the adjoining property owner requested ‘our’ contractor obtain Non-Negligence Insurance Cover. This was the only way we could proceed.

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