LEG defects clauses
Three graded wordings that set how far cover on a construction project extends to damage arising from a design or workmanship defect.
A construction all-risks policy covers accidental damage but not defective work itself, since an insurer is not there to pay for the build itself. The question is where the line falls when a design defect causes the collapse of an adjoining structure, and that is the purpose of the three graded clauses developed by the London Engineering Group. The first excludes everything connected with the defect, including the damage it causes. The second, by far the most widely used, covers the resulting damage but excludes the cost of the improvements that would have been needed immediately before the loss to correct the defect. The third leaves outside cover only the cost of improving the defective element itself. The gap between these wordings can run to tens of percent of a major loss, and it is negotiated alongside the premium, which makes it one of the few places where a wording choice shows up directly in the result. Applying them takes engineering expertise to isolate the share of rectification cost attributable to the defect.
The LEG 1, LEG 2 and LEG 3 clauses were developed by the London Engineering Group to replace inconsistently drafted defect exclusions. LEG 2 of 1996 and LEG 3 of 2006 remain the benchmark wordings on international projects.
LEG 1, LEG 2, LEG 3, London Engineering Group, defects exclusion
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