Protecting your projects

Latent defects insurance (LDI) protects property developers or owners against damage resulting from defects in design, materials, or construction that only become apparent after completion.

The insured can be any party with an insurable interest in the project, and policies can be assigned to the new owners if a development is sold. Tenants can also be included as insured parties.

Having an LDI policy in place can enhance the saleability of the completed building, while providing balance sheet protection.

A key benefit of an LDI policy is that it is written for the benefit of the property, rather than a specific legal entity. Making a claim is more straightforward than with many other insurance policies, as there is no requirement to establish who is at fault or to prove negligence. One simply needs to demonstrate that damage has occurred as a consequence of the manifestation of a defect in the way that the building was designed or built.

Policies are typically written for a period of ten or twelve years and provides protection for the total reinstatement value of the building.

What Property Developers and Owners need to know about Latent Defects Insurance

Latent defects insurance (LDI) provides coverage for hidden structural defects in a building that become apparent after construction is completed. Unlike traditional policies, LDI offers a no-fault, first-party insurance solution, meaning claims can be made without proving negligence. Although not yet mandatory across all states, interest in LDI is growing to enhance consumer protection. In 2025, long-awaited capacity entered the Australia market. This arrived at a crucial time, with the NSW Government’s announcement seeking to make this coverage compulsory by 2028.

Decision-makers should review and update policies to align with insurer expectations and regulatory standards. Proactively building a strong claims history will strengthen your organisation's position if legal mandates are enforced.

Phil Clauzel, Lockton

Latent Defects Insurance FAQs

What is the latent defect period in Australia?

LDI can normally only be purchased if an insurer’s engineer carries out a technical audit throughout the construction phase. Once they have signed off on the project’s construction, cover can be arranged from the date of practical completion for a period of 10 to 12 years.

Is Latent Defects Insurance mandatory?

NSW government plans to make Latent Defects Insurance mandatory by 2028. VIC is likely to follow suit.

What are some of the main benefits of a Latent Defects Insurance policy?

The policy is assignable to future owners and/or tenants of the building.
No requirement for the policyholder to establish fault, negligence or liability.
Time-consuming and expensive litigation does not need to happen before repairs can be started, this enables the structure to be returned with the minimum of disruption.
The technical audit process may detect issues prior to practical completion, meaning defects are corrected before the owner takes over responsibility for the building from the contractors.
Cover can be widened to include a waiver of subrogation against the contractors.

What are some examples of common claims?

Latent defects can lead to structural damage that only becomes apparent after a project’s completion, potentially causing significant costs for property owners without LDI cover. Common issues, like inadequate foundations causing subsidence, may result from poor design, workmanship, or materials.

LDI insurance covers such risks and having an insurer’s technical auditor involved during construction reduces the chances of defects. A thorough foundation inspection during construction helps identify and address any issues with materials, workmanship, or design early on.

Water ingress is another frequent cause of LDI claims, whether through cladding in commercial buildings or a leaky roof in residential properties. An insurance engineer ensures the waterproof membrane meets Building Control standards and is properly designed. LDI policies typically cover water damage from 12 months after practical completion until the policy expires.

Why choose Lockton?

Gain access to the global IDI insurance product from Build 10 - one of just two brokers offering it in the Australian market.
We’re specialist brokers in Latent Defect Insurance, not generalists.
Unique blend of global expertise and deep local knowledge, enabling us to deliver tailored solutions for your needs.

Is it a cheaper alternative to the Strata Building Bond?

It’s important to consider the specific needs of the project and the potential risks involved. Case study example:

A developer recently had a residential block reach practical completion. After a year and half, it came to light that there was severe cracking within the foundation slab and there was inadequate structural support. This put the building at risk of collapse.

Given the significant cost associated with remediating a defect of this nature, the 2% strata bond would not be enough to respond.

While costs can be passed back to the contractor, this depends on whether they have the financial capacity or the necessary insurance coverage to cover the expense. If they do not, the developer will be responsible for bearing the cost.

If an IDI/LDI policy had been arranged, this would have been one less headache the developer would have to worry about.