In this seminar we focussed on identifying common issues that arise when applying LEG exclusions in a claims context.
In this seminar we looked at the following issues:
- The trigger for coverage under LEG 2/96 and LEG 3/06 is a finding of damage.
- Once there is physical damage that opens up a gateway for cover under both clauses, but the extent of cover under each exclusion is fact specific. Both LEG 2/96 and LEG 3/06 focus on excluding costs and so, the precise engineering solution chosen by the insured or indeed whether it is the only solution available might be irrelevant.
- In a LEG 2/96 context a hypothetical exercise is undertaken to assess what, at a pre-damage point, could have been done to prevent the damage and resolve the defect.
- In a LEG 3/96 context one needs to assess what costs are attributable to an improvement. There are a number of methods for making this assessment. The first is to look at what specific repair solution would return the property to its pre-loss position and exclude the cost of that repair from the potential claim. The second is to assess the additional costs that would have been incurred at the start to implement the chosen solution.
- There should be no material difference in application between the earlier LEG 3/96 wording and LEG 3/06 wording despite the inclusion of the additional words in parenthesis.
- The rationale for underwriters excluding design risks under the LEG exclusions is to deter an insured from under designing a project and getting its insurer to pay to bring it up to the appropriate design standard. This same principle is then extended into the DSU cover.
- In relation to DSU insurance, the rationale is not to pay for lost business income where a defect means the project could not have entered commercial use without rectification of the defect. In a damage and defect scenario, one needs to assess the delay attributable to each and only the difference would fall into the scope of the DSU cover.
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