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What is latent defects insurance?
Latent defects insurance (LDI) is a first-party policy that pays to fix major defects in a new building that weren't visible at completion, typically in the structure, waterproofing, building envelope or fire safety systems. Cover usually starts at practical completion or occupation and runs for up to 10 years.
Because the policy attaches to the building rather than the builder, it protects successive owners. A claim doesn't depend on proving who was at fault or on the builder still being in business. The insurer funds investigation and repairs, then pursues the responsible parties itself.
Who needs latent defects insurance?
Developers: to give buyers and lenders confidence and, in NSW, as an alternative to lodging a strata building bond for apartment buildings over 3 storeys.
Builders and head contractors: to show buyers and financiers the project is backed by long-term defect protection.
Owners corporations and strata committees: for a direct route to repairs without years of litigation against a developer.
Lenders and investors: to reduce the risk of a building losing value because of an unresolved major defect.
Subcontractors don't usually take out LDI. It's arranged once, for the whole project, by the developer or principal.
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First-party protection against hidden structural defects
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Long-term cover (often up to 10 years) without proving liability
Quick Benefits:
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Covers investigation, repair and reinstatement costs
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Increases confidence for lenders, buyers and funding approvals
What’s Covered:
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Structural or load-bearing elements such as foundations, slabs and frames
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Waterproofing or envelope defects leading to resultant damage
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Mechanical or electrical system failures (if included in the policy)
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Investigation, access and reinstatement costs to repair defects
What’s Not Covered:
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Cosmetic or non-structural issues, wear and tear, or maintenance
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Known or disclosed defects identified before completion
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Financial losses unless specifically added to the policy
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Existing buildings outside the insured project scope
NSW decennial liability insurance (DLI)
In NSW, developers of residential apartment buildings over 3 storeys (class 2) must either lodge a building bond under the Strata Building Bond and Inspections Scheme or obtain a decennial liability insurance (DLI) policy in a form acceptable to the Secretary. Only one is required to obtain an occupation certificate.
DLI covers critical common property, including the structure, fire safety systems and waterproofing, for up to 10 years after first occupation. Owners corporations can claim as soon as a defect is identified. Developers must give Building Commission NSW notice of their intention to use DLI before construction starts, so the insurance needs to be arranged early in the project.
Planning a class 2 project in NSW? Talk to us before construction begins.
How much does latent defects insurance cost?
There's no standard price. Premiums are set project by project, and the main factors are:
- the project value, building type and number of storeys
- the construction method and materials, especially for facades and waterproofing
- the builder's track record and how much is completed before the policy is bound
- the independent technical inspections the insurer requires during construction
- the cover period, the excess and any optional extensions
Arranging cover before construction starts usually gives you the most choice and the best terms. Many insurers need to inspect the work at key stages, and some won't offer cover once the build has started.
How we arrange your LDI
1. Project review: we look at the plans, contracts, builder and timeline.
2. Market approach: we take the risk to the specialist insurers who write LDI and DLI.
3. Inspections: we coordinate the technical inspections the insurer requires during the build.
4. Placement: we bind cover and issue the certificate of currency, including what is needed for NSW DLI notification.
5. Claims support: if a defect appears, we advocate for you through the claim.
LDI compared with other construction insurance
Latent defects insurance: protects the building's owners after completion, and no proof of fault is needed.
Contract works: protects the builder or principal against loss or damage during construction, and ends at completion.
Home warranty (HBCF): protects the homeowner when the builder dies, becomes insolvent or disappears and can't complete the work or fix defects.
Professional indemnity: protects the designer or consultant when a claim alleges negligence in their advice or design.
Why use Ferguson Brown?
We're a construction and strata insurance specialist based in Sydney. We arrange cover for developers, builders and owners corporations, review construction contracts for insurance and indemnity terms, and support clients through claims.
General advice only. Cover depends on the policy wording and insurer acceptance.
Have a project in planning?
Call us at 1300 337 276
Frequently Asked Questions
Q: Do I need this if I’m subcontracting?
A: No — LDI is normally arranged by the developer or principal for the whole project, not taken out by individual subcontractors. As a subcontractor, your defect exposure usually sits under your professional indemnity and public liability cover. If you're delivering a project as principal, LDI is likely relevant and we can advise on the right structure..
Q: When does it apply?
A: Cover usually starts at practical completion and continues for multiple years, depending on the policy.
Q: How is it different from Contract Works?
A: Contract Works covers physical loss or damage during construction and ends at completion. LDI picks up afterwards, protecting against hidden structural defects that only become apparent once the building is finished and occupied.
Got more questions? Visit our FAQ page here.
More questions about latent defects insurance
Q: Who takes out latent defects insurance?
A: Usually the developer or principal, before construction begins. The policy then protects the building's owners for the policy period.
Q: Does LDI transfer to new owners?
A: Yes. It attaches to the building and protects successive owners for the policy period, usually up to 10 years from completion or occupation.
Q: Is latent defects insurance mandatory in NSW?
A: No. For class 2 apartment buildings over 3 storeys, decennial liability insurance (DLI) is one of two options; the other is a strata building bond. One of them is required before an occupation certificate is issued.
