Liquidated Damages


A builder recently contracted to a homeowner for substantial renovation work to an existing home. The owner rented temporary accommodation for the duration of the contract (only) and had included liquidated damages in the contract to cover the additional costs of accommodation, interest on mortgage and other consequential costs, in the event of delay in completion of the works. The amount of liquidated damages required was $2,500 per week.

What Caused the Delay

The contract was on time and, three days short of completion, a plumbing fitting failed causing substantial water damage to both the new works and the existing structure. Repair and/or replacement of floors, floor coverings, bespoke custom cabinetry, skirting boards, wallboards and ceilings was required. The repairs took 6 weeks (42 days). The liquidated damages were not insured and are the builder’s responsibility to pay under contract.

How the Liquidated Damages Cover Would Have Responded

MECON would have verified that liquidated damages applied and the extent to which they could apply. In this case, the $2,500 per week is a sustainable amount for damages. The cause of the delay would have triggered coverage. The cover would have commenced five days after the agreed completion date specified in the contract. Thus the policy would have paid for 37 days of liquidated damages – being $13,214. It is that simple!

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