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: