Collateral Warranties – Tips and Pitfalls
Collateral warranties are extremely common in the construction industry.
They create contractual obligations between parties where, in the absence of the warranty, there would be none.
For this reason, the wording of any Collateral Warranty demands scrutiny. That is particularly so during difficult economic times as, with companies going into liquidation, Collateral Warranties are more likely to be relied upon by a party seeking redress. We have seen more than one case recently being brought pursuant to obligations contained in a Collateral Warranty.
It is important for Insureds to understand Collateral Warranties before signing up. Indeed, Insureds should be prepared to challenge the wording of a warranty if it is adverse to its interests. It is possible that certain wording could jeopardise an Insured's professional indemnity cover. There are also other issues to look out for.
We have produced a Checklist by way of guidance that can be used by Insureds/their Insurers (or indeed solicitors) when reviewing Collateral Warranty wordings.