Mandatory inherent defects insurance in Saudi Arabia

In June 2018, the Kingdom of Saudi Arabia (KSA) became the first of the Gulf Cooperation Council (GCC) countries to introduce mandatory inherent defects insurance (IDI) for construction projects in the private sector. Whilst this insurance has been mandatory in KSA for four years now, its integration has been staggered, many of the projects to which it applies are unlikely to have reached practical completion yet and the standard policy wording, which was only introduced in March 2020, remains untested.

In the meantime, Market interest in the product remains high, and there are perhaps some unrealistic expectations of, and confusion about, what the policy is designed to cover, its scope, who can benefit from it and how it will operate in practice.

In this paper, we seek to explain what risks this policy is designed to meet and whether it does so and, of equal importance, consider what it is not designed to meet. We also look at the potential problems with its application and highlight some of the questions it raises.

For example: What benefit does the contractor obtain from the policy? Can the contractor/designer be named as an insured? Does the insurer retain subrogation rights? How does this cover interact with other insurances that might be obtained in respect of construction projects?