- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 20 Jul 2017
Building Users' Insurance Against Latent Defects
In 1988, a report was produced by the Construction Industry Sector Group of the National Economic Development Council. The report was called Building Users' Insurance Against Latent Defects known by the acronym BUILD. The committee that produced the report consisted of distinguished architects, engineers, contractors, property developers, insurers and representatives of government, under the chairmanship of Professor Donald Bishop.
The report contained an analysis of the risks of building development to the parties involved in it. Among the many points that arose from this report was the recommendation that there should be 'BUILD insurance'.
The essence of such insurance was that it should provide protection for a period of ten years, from the date of practical completion, on the basis that the insurance was a non-cancellable material damage policy against specified latent defects and damage. It was suggested that the cover initially would be limited to the structure, including foundations, the weather shield envelope and, optionally, loss of rent.
The policy was to be taken out by the developer at a very preliminary stage, at least before any work started on the site. The policy would be transferable to successive owners and to tenants of the whole building; in a situation where the whole building was not let to one tenant, the report envisaged that such tenants would be indemnified by the landlord on a back to back basis with the terms of the BUILD policy held by the landlord.
There would be a single premium to cover insurance and the necessary risk assessment and verification of the design and construction by independent consultants appointed by the insurer. There was to be provision for inflation in building costs in respect of the cover, and realistic deductibles (excess).
A further recommendation of the report was that insurers should waive their rights of subrogation without which, insurers would not be in a position to seek to recover their outlay from the party liable to the developer: for example, the architect, the engineer and/or the contractor. At the time of publication of the report this aspect was of considerable concern to insurers because it would create, in effect, a no fault insurance scheme.
There were three underwriters in the market: Allianz, Norman and SCOR. They were joined by Sun Alliance and Commercial Union in 1989. The indication in BUILD of the premium, including the verification costs, was that they would be of the order of 1.3% to 1.7% of the rebuilding cost. Although a small percentage, the cost in money terms looked substantial; for example, on a £10 million rebuilding cost, the premium would be of the order of £150,000. In addition, there were the fees and expenses of independent design checkers to be paid for.
Some developers considered the level of premium, and other fees, a high cost to pay when they were in a position to obtain tenants who were prepared to take the risk on full repairing covenants, with collateral warranties, all free of cost to the developer.
On the other hand, if the developer came to sell the building, the fact that there was such insurance might have enabled a better price to be achieved, or alternatively, a sale to be achieved which might not be achieved in the absence of the cover.
 Find out more
 Related articles on Designing Buildings Wiki
Featured articles and news
When is there a right to light, and what happens if it is obstructed?
What would the nationalisation of economic infrastructure mean for GB?
A new guide to improving value by reducing design error.
We've reached 80,000 page views a day and 10,000 registered users. Why not join them?
A masterplan is a framework within which a location is encouraged to develop or change. Read our introductory article.
New consultation announced on a specialist Housing Court to settle landlord-tenant disputes.
ICE responds to a transport consultation advising the government to make decisions enabling more inclusive cities.
BRE and Loughborough University complete first phase refurbishment of demonstration home.
How the risk of collapse of fibrous plaster ceilings is being addressed in theatres.
If you’re a great writer and have practical experience of the construction industry, it could be you.
Frustrated by long documents or technical jargon? Put off by sign-up forms or costs? Take this 5 min survey to help improve construction knowledge.