Care Home Insurance and Warranties: What Every Developer and Investor Needs to Know

Most care home developers get the build right and then get caught out by the paperwork around it.

The wrong insurance in a construction contract. A latent defects policy that a lender won’t accept. Collateral warranties that nobody chased until the sale was already agreed. These are not rare problems. They come up on almost every project that hasn’t been through this process before.

This guide covers the full insurance and warranty stack for a care home development, what each layer does, when it needs to be in place, and what lenders and investors actually require. It covers new builds, extensions, and refurbishments, since the requirements differ.

There are six distinct insurance layers on a care home project. They cover different parties, different time periods, and different types of risk. Missing one doesn’t mean the project can’t proceed ,it means someone is carrying uninsured risk, and usually they don’t know it.

Latent Defects Insurance (LDI)  also called a structural warranty or inherent defects insurance is the policy that causes the most problems on care home transactions. Not because it’s complicated, but because developers either arrange it too late or pick a provider that their lender won’t accept.

What It Is

LDI covers the cost of repairing structural defects that appear after a building is completed, problems with foundations, load-bearing walls, the roof structure, and sometimes M&E systems under an extended policy. The cover period runs for 10 years as standard, or 12 years for schemes with institutional funders or housing association involvement.

The key feature is that it responds on a no-fault basis. You don’t have to prove that the contractor was negligent, you just have to demonstrate the defect exists and that it falls within the policy definition. That matters because by the time a structural defect appears, the original contractor may be insolvent, difficult to pursue, or simply hard to pin liability on.

Why Lenders Require It

Most development finance lenders and long-term debt providers require LDI before they will lend against a completed care home. They need to know that if a structural defect appears within 10 years, there is an insured route to repair it ,one that doesn’t depend on successfully suing a contractor.

Not all LDI providers are accepted by all lenders. Every lender maintains their own approved list. If you arrange a policy with a provider your lender doesn’t accept, you have a policy that is commercially useless for refinancing or sale. Check your lender’s approved list before you buy the policy, not after.

What It Does Not Cover

LDI is not a snagging policy. It does not cover minor defects, poor finishes, equipment failure, or anything that would normally fall under the contractor’s defects liability period (typically 12 months post-completion under JCT contracts). It also does not cover damage caused by events like fire, flood, or subsidence from a third-party cause, those sit under the building’s operational insurance.

Extensions and Refurbishments

LDI is available for extensions and major refurbishments, not just new builds. Cover applies to the new works and how they connect to the existing structure. The underwriting is more detailed because the existing building introduces uncertainty ,so the structural survey and connection point matter more, not less.

We covered the structural risks at the connection point in our guide on how to extend a care home. A structural survey at the junction between old and new is not optional if you want LDI coverage on the extension.

CAR insurance covers the works in progress during construction. Fire destroys the timber frame. A storm damages the roof before it’s watertight. A theft strips out installed M&E. All of this sits under CAR.

On most care home projects, the main contractor arranges CAR as part of their obligations under the JCT contract. But there are things to check:

•    The policy limit should cover the full reinstatement value of the works, not just the contract sum. These are not the same thing. Reinstatement includes professional fees, site clearance, and any uplift in material costs.

•    Check whether your interests as employer are noted on the policy. On larger projects, a joint-names policy covering both employer and contractor is cleaner and removes any gap if the contractor’s insurer disputes a claim.

•    On a live refurbishment or extension, the existing building needs to be covered too. A CAR policy that only covers the new works leaves the existing occupied building uninsured against damage caused by the construction activity.

•    Subcontractors should be covered by the main policy or carry their own. Check that the CAR policy extends to subcontractors, or require each subcontractor to provide evidence of their own cover.

Every professional on a care home project — architect, structural engineer, M&E engineer, quantity surveyor — should carry Professional Indemnity (PI) insurance. This covers claims arising from design errors, negligent advice, and failures in professional duty.

There are three things that matter in practice:

•    PI insurance runs on a claims-made basis. The policy in place when the claim is made is the one that responds — not the policy in place when the work was done. A professional who retires or changes insurer without arranging run-off cover can leave you with no recourse.

•    The coverage level needs to match the project risk. A £1m PI policy on a £10m care home project is not adequate. Require cover at a minimum of the contract value, and check the policy wording for any aggregate limits that could be eroded by other claims.

•    On Design & Build contracts, the main contractor’s PI covers the design. If you’re procuring on a D&B basis, the contractor’s PI policy is your protection against design failures — check it exists and is adequate before you sign the contract.

A collateral warranty is a legal document that gives a third party, a funder, an investor, or a future buyer ,direct contractual rights against the contractor or a professional on your project.

Without a collateral warranty, that third party has no direct legal relationship with the people who built or designed the building. If a serious defect emerges after you have sold or refinanced, the new owner or lender cannot pursue the contractor directly. They can only pursue you.

Who Needs Them

For a care home development, you will typically need collateral warranties from:

•    The main contractor — in favour of the funder, and in favour of any future buyer

•    The architect and lead designer

•    The structural engineer

•    The M&E engineer

•    Any key specialist subcontractors — particularly M&E, fire protection, and specialist dementia or accessible bathroom fit-out

When to Get Them

Collateral warranties should be in the contract from the start, not chased after the building is complete. The standard JCT contracts include provisions for collateral warranties. Make sure the requirement is there in the appointments and the building contract before anyone starts work.

In practice, warranty requests land during refinancing or at the point of sale. The contractor or professional has often moved on, the project team has dispersed, and getting anyone to sign anything becomes difficult and slow. Chasing collateral warranties under time pressure at a transaction is a common and avoidable problem.

What to Watch For

•    Fitness for purpose clauses. Some warranty requests include a clause requiring the warrantor to guarantee the building is fit for purpose as a care home. Most PI insurers will not cover this obligation — it goes beyond reasonable skill and care. Remove it or expect the warrantor to resist signing.

•    Net contribution clauses. These limit each party’s liability to their proportionate share of the fault. Lenders often resist them. It is a common negotiating point.

•    Assignment. Check that warranties can be assigned to future owners and lenders without consent, or with a reasonable number of permitted assignments. A warranty that cannot be assigned is less useful than it looks.

Once the building is occupied and operating as a care home, a different set of insurance policies takes over. These are the operator’s responsibility, not the developer’s, but if you are developing to operate, or if you are a lender with security over the building, you need to understand what should be in place.

Care home professional liability (sometimes called care liability or social care liability) is the policy most general insurers do not offer as standard. You need a specialist broker who understands the sector. The claims profile is different from standard commercial liability: a single serious safeguarding failure or CQC enforcement action can generate claims that dwarf the building’s annual premium.

If you are raising development finance, refinancing a completed home, or selling to an institutional buyer, expect due diligence to cover:

•    LDI policy: Provider, coverage amount, policy term, and whether the provider is on the lender’s approved list. They will ask for the certificate.

•    CAR insurance: Evidence that the works were insured during construction. Usually satisfied by the contractor’s insurance schedule or a joint-names certificate.

•    PI insurance for each professional: Level of cover and run-off provisions. They will ask for certificates for the architect, structural engineer, and M&E engineer at minimum.

•    Collateral warranties: Executed copies from the contractor and each named professional. This is usually the slowest part of the due diligence pack to assemble.

•    Operational insurance schedule: Confirming building, liability, and care liability cover is in place with adequate limits.

A well-prepared insurance pack shortens due diligence by weeks. A poorly prepared one,  or one where warranties were never properly executed, can delay or kill a transaction.

Do I legally have to have latent defects insurance on a care home?

Not as a matter of law in most cases, but commercially it is almost always essential. Most development finance lenders and institutional buyers require it. Without it, refinancing or selling the asset is significantly harder. Arrange it before construction starts — retrospective cover is more expensive and some lenders won’t accept it.

Who arranges latent defects insurance — the developer or the contractor?

It is usually arranged by the developer or building owner, not the contractor. The policy stays with the building and transfers to any future owner. Separate from this, the contractor carries their own CAR and liability insurance during the build.

How long should professional indemnity insurance last after a care home is completed?

At a minimum, 6 years post-completion. For projects with institutional funding or where collateral warranties have been given, 12 years is standard. PI insurance runs on a claims-made basis, so the professional needs to maintain live cover throughout — or arrange run-off cover if they retire or change insurer.

What is the difference between a collateral warranty and a latent defects insurance policy?

They are different tools that overlap in what they protect against. LDI is an insurance policy — it pays out directly if a structural defect occurs, without needing to prove anyone was at fault. A collateral warranty is a legal agreement — it gives you the right to sue the contractor or professional directly. LDI is faster to recover from in practice. Collateral warranties are important where design liability is a specific concern.

Do I need collateral warranties if I have latent defects insurance?

Usually yes. LDI covers structural defects on a no-fault basis, but it does not cover design failures that fall outside the structural category — a mechanical system that fails due to a design error, for example. Collateral warranties give you a direct claim against the party responsible. Most lenders and institutional buyers want both.

Does a care home extension need its own LDI policy?

Yes — the extension works need their own cover. It applies to the new structure and the connection to the existing building. Underwriting is more detailed than for a new build because the existing structure introduces unknowns. A structural survey at the connection point is usually required.

At Care Home Builders we work with developers and operators on projects across London and the South East. We can help you understand what insurance and warranty requirements apply to your project and connect you with the right specialists before the build starts not after.