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The effect of the new words would appear to be a significant reduction in coverage over that available under either prior set of Institute Time Clauses which an assured would need to consider carefully before accepting insurance under them rather than the Institute Time Clauses.
Effect of Additional Perils cover?
The new clauses also contain a new Additional Perils Clause in Clause 44. Somewhat bizarrely, cover is not there given for the actual costs incurred in repairing the latent defect but as follows
“44.1 If the Underwriters have expressly agreed in writing, this insurance
covers…
44.1.2 the cost that would have been incurred to correct the latent defect where such latent defect has caused loss of or damage to the subject-matter insured covered by Clause 2.2.2”…
Nor is the actual cost a limit. Capricious results could follow from this new approach. Suppose, as an example and disregarding any deductible, repair costs of a latent defect and consequential damage are £40,000. £20,000 of this is for owners’ account as being the costs attributable to repairing the latent defect rather than the damage caused by it. The amount recoverable under Clause 2.2.2 would be the amount by which the £20,000 cost to repair the consequential damage exceeded the cost that would have been incurred to correct the latent defect ( that is the calculated cost not the actual costs incurred). If, say, that figure were £15,000, £5,000 would be recoverable under Clause 2.2.2 plus the £15,000 under the new Additional Perils Clause, leaving owners out of pocket in the amount of £20,000. That is exactly the same position as they would have been in under the 1983 or 1995 Institute Time Clauses without Additional Perils coverage at all.
If the cost that would have been incurred to correct the latent defect was not £15,000 but was, say, £25,000, then nothing would be recoverable under Clause 2.2.2 but the whole £25,000 would be recoverable under the new Additional Perils Clause. However the Owner would still be out of pocket and £15,000 worse off than under the previous Institute Time Clauses with the Institute Additional Perils Clause added.
A third possibility, which is less likely but feasible in certain circumstances, is where the cost that would have been incurred to correct the latent defect is more than the total actual repair costs, say in the above example £45,000. The Owner would recover nothing under Clause 2.2.2 but £45,000 under the new Additional Perils Clause, thereby getting a windfall of £5,000 over the actual costs incurred.
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