In the world of construction and engineering, risk is inevitable. Even with the best planning, highly skilled professionals, and top-quality materials, defects can occur. A single design error, a batch of faulty materials, or poor workmanship in just one section of a project can create significant financial loss — not only to the defective part itself but also to the surrounding works.
This is why insurance extensions such as Designer’s Risk Cover exist. It closes a crucial gap often left out by standard construction policies, providing a safety net when defects cause unexpected loss or damage.
What Is Designer’s Risk Cover?
Designer’s Risk Cover is an extension under Construction All Risk (CAR) or Erection All Risk (EAR) insurance policies. It ensures that the cost of replacement, repair, or rectification is covered if loss or damage arises from:
- Defective materials,
- Faulty workmanship, or
- Flawed design.
But there’s an important distinction — this cover is limited to the items immediately affected by the defect. At the same time, it also ensures that damage to correctly executed works, caused by those defects, will not be excluded.
Why Is It Important?
In a standard CAR/EAR policy, there is usually a Defects Exclusion Clause. This means insurers will not pay for loss or damage caused by defective workmanship, materials, or design. Without Designer’s Risk Cover, contractors and designers would be fully liable for those costs.
Designer’s Risk Cover narrows that exclusion by giving back coverage for:
- The defective item itself, and
- The consequential damage caused to other properly completed items.
This is vital protection because defects don’t just affect the defective part — they often compromise the safety and integrity of the whole project.
Practical Example: Faulty Design
An engineering firm designs the structural framework of a commercial building. However, due to a miscalculation, one of the beams cannot support the intended
load.
- The faulty beam itself is defective — Designer’s Risk Cover pays for its replacement.
- Because of the defective beam, a section of the ceiling collapses, damaging the flooring below — Designer’s Risk Cover also pays for the repairs to the ceiling and flooring.
Without this extension, the insurer could reject the claim entirely, leaving the contractor or designer to bear both the cost of the faulty beam and the
consequential damage.
Practical Example: Defective Material
A contractor installs piping in a factory, using what was assumed to be high quality imported materials. Later, it is discovered that part of the batch contained manufacturing defects. The defective pipe bursts and causes flooding in the factory floor.
- The defective piping is covered for replacement.
- The damage to the factory floor and machinery caused by the burst pipe is also covered.
If Designer’s Risk Cover were not included, the defective pipe would be excluded as “defective material,” and the resulting damages could also be denied.
Practical Example: Poor Workmanship
During the construction of a condominium, a subcontractor installs windows incorrectly. Months later, during heavy rain, water seeps through and damages the interior walls and flooring.
- The poorly installed windows are covered under Designer’s Risk.
- The damage to interior finishes and flooring is also covered since it resulted from the faulty work.
Again, without this cover, the insurer would likely reject the claim, citing “defective workmanship.”
Benefits of Designer’s Risk Cover
Protects Financial Stability
Defects can cause losses running into millions. This cover prevents contractors and designers from absorbing the full financial blow.
Complements Standard CAR/EAR Policies
It fills a major gap in insurance that most clients overlook until it’s too late.
Boosts Credibility
Having this cover shows professionalism and gives clients confidence in the contractor’s or designer’s risk management practices.
Minimises Legal Disputes
Clear coverage reduces the chances of finger pointing between contractor, designer, and project owner when defects appear.
Final Thought
In construction, defects are not always avoidable. Materials may fail, human errors may slip through, and design flaws may only surface months later. What
matters is how prepared you are to handle the financial and reputational impact when these issues arise.
Designer’s Risk Cover ensures that you’re not left unprotected. It safeguards both the defective item and any consequential damage, keeping projects on track and protecting your business from unexpected financial strain.
For contractors, engineers, and designers, it’s more than just another insurance clause — it’s a vital layer of security that ensures your hard work and reputation remain protected.
Jayadarshiniy Sankar is a Senior Insurance Advisory Manager with a background in law and over 5 years of experience in professional indemnity and general insurance. She specializes in regulatory compliance and client solutions, delivering tailored coverage with prompt, results-driven support while actively educating clients through industry content and guidance.