DE1 to DE5 design defect clauses
Five graded London market defect exclusions, drafted in the early 1980s and revised in 1995, from DE1, which excludes everything, to DE5, which only excludes the cost of improving the design.
Osterley, west London: Sky's headquarters, delivered in 2016 by Mace, carries Europe's largest flat timber roof, 16,000 m² of cassettes. Water gets into the cassettes and rots the timbers. The suit against the contractors all risks insurers produced in 2023 what commentators describe as the first court decision to interpret the DE5 clause. The Court of Appeal ruled on December 16, 2024, and the UK Supreme Court refused the insurers permission to appeal on April 30, 2025. The DE clauses were written in the early 1980s by a group of insurers, mostly from the London market, then revised in 1995 by a committee of building and civil engineering underwriters. They range from the broadest exclusion to the narrowest. DE1 (outright defects exclusion) excludes all damage due to the defect, wherever it occurs. DE2 and DE3 exclude property in a defective condition and whatever must be demolished to fix it, but pay for sound property it damages; DE2 also excludes property that relies on it for support or stability, DE3 does not. DE4 (defective part exclusion) only excludes the defective part and pays for the damage it causes elsewhere. DE5 (design improvement exclusion) pays even for the defective part and leaves outside cover only the cost of improving the original design, plans or workmanship. The LEG clauses of the London Engineering Group (1/96, 2/96, 3/06) came later and took most of the English market. LEG 2 is commonly compared with DE4 and LEG 3 with DE5, with no word-for-word equivalence: a policy that moves from one to the other changes wording, and case law on one does not automatically carry over to the other. DE clauses remain common in Asia, Australia and programs drafted on older templates. On a major project, little less favorable to the insured than DE3 gets through.
Textbook case, in numbers. An undersized beam fails and brings down a sound slab. Rebuilding the beam as it was costs 2 million dollars, strengthening it to a corrected design 0.6 million more, the slab 6 million. Under DE1, all damage due to the defect is excluded: nothing is paid. Under DE2, the slab, which rests on the beam, falls within the exclusion: nothing either. Under DE3 or DE4, the slab is paid: 6 million. Under DE5, the beam as well: 2 + 6 = 8 million, and only the 0.6 million of strengthening stays with the insured, out of an 8.6 million loss.
DE clauses, DE1, DE3, DE5, London market defects exclusions
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