Insurance policies

Why are construction defects not covered by insurance policies? – The Irish Times

Building defects from the Celtic Tiger era affect up to 100,000 properties across the state, with a potential bill of $2.8 billion to fix the issues.

Unfortunately for the owners of these buildings, there are few options when it comes to trying to find someone to foot the bill, even if an insurance policy is in place.

What are the faults of the accommodation?

Fire safety issues were found to be the most prevalent form of defect, present in 40-70% of affected homes; with water infiltration present between 20 and 50 per cent, and less common structural safety defects in around 5 to 25 per cent of homes, according to the task force set up by Housing Minister Darragh O’Brien to examine the issue .

And how common is it?

It is understood that the task force has found that issues such as lack of fire safety equipment, structural defects and water infiltration are present in up to 80% of apartments and duplexes built between 1991 and 2013 , which equals 62,500 to 100,000 units. .

But why does the insurance not only cover the cost of repairing the defects?

This is where things get complicated. According to construction lawyer Lydia Bunni, most construction contracts have an insurance policy in case of loss.

“It’s not the insurance policy that was in place when these buildings were built, it’s the insurance policy that is in place today or whenever the claim is made that pays. That’s the problem,” she said. If the contractor who built the apartment has gone bankrupt, there is no insurance policy in place, she added.

But if the entrepreneur is still in business, does the insurance have to pay then?

Most often the answer is no, due to the way policies have been designed and the ownership structure of apartment buildings.

Ms Bunni said: ‘In the insurance policy itself, there will be very specific pre-conditions which will need to be met, before the insurance company will agree to indemnify the insured. Sometimes the insurance company simply does not cover the defect that has occurred.

Another construction lawyer, Dr. Deirdre Ní Fhloinn, said that when you buy an apartment, you enter into an emphyteutic lease, which is usually a 500-year lease.

“Each person has a lease, which means they don’t own the whole building. The structure and common areas are usually owned by a management company,” she said.

“Usually the owners’ management company doesn’t really have the ability to sue the original builder under contract law if a defect later appears in the building.”

As a result, owners generally took out their own individual policies. However, typically these products were for major structural defects, meaning water infiltration and fire safety were not covered.

Have insurers reimbursed any of these defects?

According to Ní Fhloinn, water infiltration was covered in some cases, but firestop issues were generally not covered by these warranty policies. Under the Homebond Scheme, water ingress and certain physical fire safety hazards are only covered for five years, but many of these issues only arise after that period has expired.

So isn’t legal action possible?

The cost of litigation is a prohibitive factor, according to Ní Fhloinn, who added that it is “complex” to bring a case if you are one in 10 landlords in a development.

“The structure adopted for the ownership and management of apartment buildings does not easily lend itself to litigation when it comes to an issue that affects the entire building,” she added. Also, if someone notices the defect outside the six-year legal limit, Ms Bunni said any legal action is essentially a “lost cause”.

“Once the defect manifests itself in terms of file taking, time begins to run. While there may be a need for a change in legislation for a discoverability test. So time will only start to run when you discover the defect,” she said.

“Fire safety and firebreak as a defect manifests itself when the building is finished, if not sooner. You will never discover this defect until it may be too late, as in most of these cases.

So the owners are responsible for these costs?

Essentially, in many cases, yes. Ní Fhloinn said: “So if there’s a defect in your building and it’s not covered by a warranty policy, and the original contractor is either someone you can’t not sue, or a limited liability company that has no money or insurance, then what you are left with is that the apartment owners themselves must collectively come up with the money.

However, it looks like government intervention will be on the way, with Tánaiste Leo Varadkar telling the Dáil on Thursday that there will need to be government assistance for people who have purchased flats affected by building defects.