Welcome to our first Spring newsletter. For our discussion this month, I would like to cover a relatively new development to the liability market: Faulty Workmanship. Most major insurers have recently introduced a new Broadform Liability Defective Workmanship Optional Extension. Whilst there are some differences the principal is pretty much the same concept.
At present, typically a Broadform Liability wording provides cover for resultant damage which follows on from defective workmanship. The wording excludes the cost of correcting or completing this defective workmanship. Determining where resultant damage starts can be a challenge for many trades & occupations. The new Broadform Liability Optional Extension provides cover for the damage caused by defective workmanship & the standard wordings will continue to insure resultant damage.
In addition, in circumstances where there is damage under defective workmanship & resultant damage, only one excess will apply. The amount of excess will be the higher amount which applies to any area of cover. The standard annual, aggregate indemnity limit is generally $100,000. If an alternative limit is required, insurers will provide quotations on a case by case basis.
The cost of this Optional Extension and the excess applicable will depend on the occupation of the Insured. The Building Defects and Mould exclusion will continue to operate & regretfully insurers will not offer the Defective Workmanship Optional Extension to roofing & waterproofing contractors.
This is such a fascinating area of liability cover & clearly evolving as a result of situations, often expensive, which have historically not been insured by a standard policy. I thought the best way to assist understanding another rather complex area of insurance is by way of claims scenarios. A couple follow for your interest.
Issues ~ Legal Liability/ Consequential Loss/ Resultant Damage
BCD Bakers Ltd decide to replace an old oven & purchase a new oven from a wholesaler. The bakers employ ABC Builders Ltd to remove the old oven & install the new one. The builders connect the new oven to the electrical supply but do not check the voltage. The voltage is too high & when the builder switches on the oven, the circuit board burns out. The oven has been damaged, there is smoke damage & the bakery cannot operate for two days due to the lack of an oven.
The damage to the oven & the consequential loss to the business, would be insured under the defective workmanship extension. The redecoration/smoke damage repairs would be covered under the basic Broadform wording as “resultant damage”.
Issue ~ Damage
CED Lawyers Ltd buy a heat pump from a wholesaler & employ ABC Builders Ltd to install it. The builders attach it to the wall but fail to secure it properly.
The heat pump works but when it is operational, it vibrates against the wall.
CED Lawyers Ltd are dissatisfied with ABC Builders Ltd work & ask EFG Electricians to rectify the problem. The electricians attach the heat pump properly, the vibration stops & they submit their invoice to the lawyers. The lawyers pay for the electricians work but deduct this from the invoice of ABC Builders Ltd.
ABC Builders Ltd submit a claim, under the defective workmanship extension, for the shortfall in payment received. However, there has been no damage & therefore, the claim would be rejected.
I hope you have found this newsletter informative. If you would like further claims scenarios, or know others who may have these exposures please contact us. And, if you would like to discuss anything covered here, please get in touch, Carla or I will be happy to assist.
I trust you are all enjoying the warm days now as we begin our journey through to summer.
My best wishes.