Allianz Reconfirms New Capacity for Inherent Defects Coverage

Germany’s Allianz has reissued a bulletin confirming the increased capacity of its Global Risks unit available to cover faulty design, faulty material and faulty workmanship – inherent defects – for up to 12 years.

“Allianz Global Risks offers some 40 million euros [$43.3 million] of Inherent Defects Insurance (IDI) capacity on PML (Possible Maximum Loss) basis – a substantial part of the estimated 200 million euros [$216.5 million] total IDI capacity available worldwide,” said the announcement on the company’s Website: http://www.allianz.com.

The bulletin explained that “construction of structures has become increasingly complex mainly due to innovative design and new materials, revised construction contracts and/or legislation and ever tighter construction plans.” Owners or investors are therefore facing higher risks of finding inherent defects in construction. Allianz noted the collapse of a 6-story building in Foggia, Italy in 1999 that caused the deaths of 30 people as an example of “how dreadful the consequences of an inherent defect can be.”

Some of the problems involved go beyond the coverage normally carried by the builders or contractors to protect the owner (whether contractual or legal). Allianz indicated that sometimes “recourse is not always possible or fruitful. The required proof of wrongdoing is sometimes difficult because of shared responsibilities between architects, contractors, manufacturers or consultants. Some of the participants may even have disappeared and along with them the hope to ever recover the loss.”

“Many owners or investors either accept this risk or believe it is covered within the jungle of their insurance package,” it continued. “IDI can ensure a smooth settlement of claims. IDI generally complements other insurance policies such as Property, Construction All Risks, Maintenance, Professional Indemnity and Machinery Breakdown.”

“To meet demand, Allianz Global Risks has now secured a substantial part of the total global IDI capacity,” said the announcement. In addition it has created a “cross-border Expert Team for Building Constructions and Structures and its sub-group for Inherent Defects Insurance,” allowing it to bundle its competence.