Commercial Structural Defects Insurance covers claims made against the builder for any act, error or omission which results in a Structural Defect once construction has been completed, i.e. no cover for defects discovered or known before the date of issue of the occupancy permit (or similar document).
This type of insurance is issued on a ‘Claims Made’ basis which means that the policy only covers claims first made against the insured during the policy period and notified to the insurer during that same policy period.
The minimum Limit of Liability available is $1,000,000 any one claim and in the aggregate, plus one automatic reinstatement, and a maximum of $10,000,000. In the event of a claim the builder must pay an excess of 2% of the value of the contract out of which claims arise or $10,000, whichever is the greater, any one claim.
The definition of structural defect is specific in that it must affect the stability or strength of the building or any part therefore and is attributable to defective design, defect or faulty workmanship and / or defective materials and which:
- results in a regulatory authorities closing or prohibiting the use of the building or any or part thereof; or
- does or would prevent the continued practical use of the building or any part thereof; or
- results in destruction of the building or physical damage to the building or any part thereof; or
- results in threat of imminent collapse that may reasonably be considered to cause destruction of the building or physical damage to the building or any part thereof.
Importantly, Commercial Defects Insurance does not cover indirect or consequential loss resulting from the defect, only the direct costs of rectification of a Structural Defect.
The Commercial Defects Insurance premium is generally calculated by the insurer on a 3 year average turnover, i.e. forthcoming year estimate, last year’s actual and the year before actual.
Whilst from the 1st July 2014 this insurance is no longer mandatory and isn’t required to renew your commercial building licence your liabilities for commercial defects still remain, as the Building Act has not altered in this regard. Furthermore, due to the ‘claims made’ we recommend you continue to purchase the insurance to maintain cover for past and ongoing work.