Update on obligatory liability insurance for contractors

Update on obligatory liability insurance for contractors

A new, concrete step has been taken in the direction of mandatory insurance for the liability of contractors.

We have already reported on earlier initiatives to introduce such obligatory insurance and explained the proposed outlines at our client seminar of 20 October 2016 on insurance policies in the construction sector.

In the spring of 2016, the federal government distributed a preliminary draft law on the obligatory insurance of the ten-year civil liability of contractors, architects and other service providers in the sector of construction works.

The aims of this first "preliminary draft" were (i) the elimination of the discrimination between the architect and the other involved parties as established by the Constitutional Court (decision no. 100/2007 of 12 July 2007), (ii) the better regulation of the construction market and (iii) the protection of the principal (and consumer) against the possible insolvency of the contractor, architect and other involved parties, (iv) the protection of everyone who intervenes in the construction process vis-à-vis one another and of third parties.

This first preliminary draft (which in the meantime has been adapted, see below) prescribed an mandatory insurance that would cover the ten-year civil liability of contractors and architects (as well as design and engineering firms) for stability-threatening defects (articles 1792 and 2270 of the Civil Code) for the period of ten years after the acceptance of the works, but limited to the solidity, stability and watertightness of the closed structure of an immovable property. This obligatory insurance would also be limited to works on buildings that are (wholly or partially) intended for habitation. There were various exclusions, including for purely non-material damage, for aesthetic damage and generally for (material and immaterial) damage below 2,500.00 EUR. As a result, the (extra-contractual) third parties liability , the liability prior to the acceptance, the liability for minor hidden defects and the liability with regard to works other than buildings for habitation would not obligatorily have to be insured.

The guarantee of this insurance would cover the damage that is incurred during a period of ten years following acceptance of the works. The coverage per loss event (for material and immaterial damage) may not be lower than either the value of the building, if this value amounts to less than 500,000.00 EUR, or this amount of 500,000.00 EUR for a building that was worth more than this amount.

This first preliminary draft also featured several other provisions, including the possibility of a global policy, exceptions for civil servants, rules of evidence, a committee of accompaniment for potential non-insurable risks, a guarantee fund for contractors or other service providers in the construction sector who would not find any insurer on the regular market, provisions concerning proof (in accordance with the present regulation for architects), an insurance certificate to be presented before the start-up of the worksite (to be verified by the architect) and once again upon sale and to be presented to the NSSO, a substitute suretyship, and provisions on the detection, determination and suppression of violations.

The preliminary draft thus regulated both the obligatory insurance of contractors and "other service providers in the construction sector" (primarily design and engineering firms) and that of the architects. The current regulation of the obligatory insurance of architects would be replaced and partly abolished, including the (double) joint and several liability of the architect - natural person if the architectural firm did not fulfil its insurance obligations.  Furthermore, according to this first preliminary draft, the architect would no longer have an obligation to provide for insurance coverage of (i) his contractual liability prior to acceptance of the works, (ii) his contractual liability for other than stability-threatening defects, or (iii) his extra-contractual third party liability, in contrast to the current obligatory insurance for architects.   

After consulting the sectors, the Council of Ministers evidently submitted another draft to the legislation department of the Council of State for review and advice.

On 20 October 2016, the Council of Ministers, at the proposal of Ministers Kris Peeters and Willy Borsus, approved a preliminary draft law that is intended to introduce an obligatory ten-year civil liability for contractors, architects and other service providers in the sector of construction works.   

This second preliminary draft strives for the same goals as described above, but is limited to the obligatory insurance of contractors and other parties "that intervene in the construction process". By contrast, the obligatory insurance of the ten-year liability of architects and "other intellectual professions in the construction sector" is the object of a different preliminary draft law.

This preliminary draft was submitted for advice to the legislation department of the Council of State, but the text has not yet been made public. It is still not known to what extent it differs from the texts that were circulating earlier, or from the present regulation for the obligatory liability insurance of architects.

It is uncertain within what period the Council of State will be issuing its advice and whether further changes will then be made to the draft before it is submitted to Parliament. Naturally, we will keep you informed on further developments.

To be continued…

For more information on this topic, you can consult Pim van den Bos (the author) and Siegfried Busscher (author and the head of the Insurance Law Practice Group).