Coverage’s of Defect Design under CAR/EAR
Under CAR policy, the design defect is not covered. Due to design defect, the loss /damaged may be to the property itself or property having the support of defect property To cover such risks clauses DE2, DE3, DE4 and DE5 are available as an “add on covers” and defined as under:
DE1 is a total exclusion of all loss or damage.
DE2 excludes property that is defective and property which relies for its support on property which is defective, but gives cover for other insured property which is free of defect.
DE3 excludes property which is defective, but gives cover for other property which is free of defect and is damaged by defective property.
DE4 is similar to DE3 but restricts the exclusion to any ‘component part or individual item’ which is defective. Note – DE4 was generally intended for machinery erection risks where an individual component could be identified in a machine as defective.
DE5 provides full cover for both defective and non-defective property provided there is actual damage (even if only to the defective part). Cover is not given for the existence of defects. The costs of redesigning are excluded.
Example – A steel frame building with roof completed, cladding partially completed and dwarf brick wall completed. The nuts and bolts used in construction of the steel framework proved to be inadequate, and the whole structure collapsed, damaging everything.
The various defect exclusions would limit indemnity as follows –
- DE1 – all damage would be excluded
- DE2 – all damaged items excluded except for the dwarf brick wall
- DE3 – steel framework excluded; roof, cladding and dwarf brick wall paid for
- DE4 – only the nuts and bolts excluded
- DE5 – all damage paid for but improvement costs excluded.