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  • Managing Long-Tail Risk: Latent Defects, the Limitations of Warranties, and Protecting Against Insolvent and Bankrupt Counterparties

Managing Long-Tail Risk: Latent Defects, the Limitations of Warranties, and Protecting Against Insolvent and Bankrupt Counterparties

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Insolvency Insider
July 17, 2026

Jason Annibale and Yu-Meng Fang of McMillan warn that construction warranties may leave owners with little more than an unsecured claim if latent defects emerge after the provider becomes insolvent, making clear drafting and independent protections such as maintenance bonds, letters of credit, latent defect insurance and escrowed warranty holdbacks critical to managing long-tail risk.