In the construction and property industries, insurance is vital to protecting stakeholders from financial risks. However, not all insurance policies are created equal, and the differences between them can sometimes lead to confusion.

Resilience Latent Defects Insurance (LDI) is one policy often misunderstood, particularly when compared to strata insurance, construction insurance, professional indemnity (PI) insurance, as well as many others.

A common misconception is that Resilience LDI offers duplicate coverage to other policies, particularly strata insurance. This misunderstanding can leave property owners, builders, and developers underprepared for the unique risks that only Resilience LDI addresses. In this article, we’ll explore how Resilience LDI differs from these other insurances, clarifying why it’s an essential safeguard for construction projects.

What is Resilience LDI?

Resilience LDI is a first-resort strict liability policy that covers physical loss or damage to new buildings caused by hidden structural and waterproofing defects. These defects, which may arise from flaws in design, materials, or workmanship, often become apparent years after construction is complete. LDI typically provides coverage for up to 10 years from the date of practical completion.

Unlike other types of insurance, Resilience LDI:

Covers defects: It doesn’t require a determination of fault, allowing for swift resolution
Protects property owners directly: Coverage applies regardless of whether the original builder or developer is still operating.
Focuses on structural elements: Its scope includes foundations, load-bearing walls, and waterproofing, among other critical components.

How Resilience LDI differs from other insurances

1. Strata Insurance

Strata insurance is often mistakenly thought to provide the same coverage as Resilience LDI. However, the two serve entirely different purposes.

Strata Insurance: Protects common property in a strata scheme, such as roofs, lobbies and shared amenities, against risks like fire, flood and accidental damage. It does not cover structural waterproofing defects.

Resilience LDI: Covers hidden defects in the building’s structure and waterproofing, ensuring that property owners are protected from significant repair costs years after construction.

Key Difference: Strata insurance manages external risks and day-to-day maintenance, while Resilience LDI addresses hidden construction flaws.

2. Construction Insurance

Construction insurance, also known as contract works insurance, protects against risks during the building phase.

Construction Insurance: Covers damage to the site, materials, and equipment during construction due to events like theft, fire, or weather. It also protects against delays caused by these incidents.

Resilience LDI: Comes into effect after the project is complete, protecting against unforeseen structural and waterproofing issues.
Key Difference: Construction insurance is limited to risks and patent defects discovered during the building phase, while Resilience LDI provides post-completion protection and coverage for latent defects.

3. Professional Indemnity (PI) Insurance

PI insurance covers professionals, such as architects, engineers, and consultants, against claims of negligence or errors in their work.

PI Insurance: Focuses on liability, compensating for financial losses caused by professional mistakes.

Resilience LDI: Addresses physical defects and their repair, without requiring proof of professional negligence.

Key Difference: PI insurance is liability-based, while Resilience LDI is a no-fault policy ensuring immediate action on defects.

4. Liability Insurance

Liability insurance protects builders, developers, and contractors against claims for bodily injury or property damage caused during construction.

Liability Insurance: Covers legal and compensation costs if someone is injured on-site or if the work causes damage to neighbouring properties.

Resilience LDI: Covers structural and waterproofing issues that arise years later, with no need for a liability claim.
Key Difference: Liability insurance handles claims during or immediately after construction; Resilience LDI focuses on the building’s structural longevity.

5. Landlord Insurance

Landlord insurance covers risks associated with leasing a property.

Landlord Insurance: Protects landlords from tenant-related risks, including damage to the property, loss of rent, or liability claims from tenants.

Resilience LDI: Covers the structural integrity of the building, not tenancy-related issues.

Key Difference: Landlord insurance is tenancy-focused, while Resilience LDI protects the physical structure itself as well as waterproofing failures.

Why LDI is not “doubling up”

Many property owners mistakenly believe that having strata or construction insurance means they don’t need Resilience LDI. This misconception can leave them exposed to significant financial risks.

Strata insurance does not cover defects: If a structural flaw in the building or waterproofing issue causes damage to common property, the cost of repair typically falls back on the owners’ corporation. Resilience LDI steps in to cover these costs.

- Construction insurance is temporary: Once the project is complete, construction insurance no longer applies, leaving a gap in coverage that Resilience LDI fills.

- No reliance on liability claims: Unlike PI or liability insurance, Resilience LDI ensures immediate repair coverage, avoiding delays caused by fault-finding or disputes.

Who benefits from Resilience LDI?

For property owners

Resilience LDI provides peace of mind, ensuring they are not burdened with repair or litigation costs for hidden defects years after buying their property.

For Builders and Developers

By including Resilience LDI in their projects, builders and developers can differentiate themselves in the market, demonstrating a commitment to quality and accountability. It also helps protect their balance sheets, offering financial security in the face of potential latent defect claims. Moreover, Resilience LDI-backed projects often experience improved sales velocity and command higher prices, providing a clear competitive edge.

For Financiers

Resilience LDI-backed projects are seen as lower-risk investments, enhancing their attractiveness to financiers.

For OC Managers

Resilience LDI ensures higher building quality through rigorous inspections, provides financial protection with a 10 year warranty for structural and waterproofing defects and simplifies defect resolution by allowing direct claims without the need to prove fault, enhancing the reputation and effectiveness of OC managers

The future of LDI in Australia

As construction standards and buyer expectations continue to rise, Resilience LDI is becoming a crucial part of the insurance landscape. Builders, developers, and property owners need to recognise its unique role in safeguarding against long-term risks. It is not a replacement for other insurances but a necessary addition that fills critical gaps in coverage.

The misconception that Resilience LDI overlaps with strata or other insurances must be dispelled. By understanding the distinct protections Resilience LDI offers, all stakeholders can make informed decisions to secure their investments and protect their reputations.

Resilience LDI isn’t just an option—it’s an essential safeguard for a secure future in construction and property ownership.