CAR insurance: insurees not always covered (Cass. 24.02.2017)

CAR insurance: insurees not always covered (Cass. 24.02.2017)

A CAR (Contractors All Risks) insurance policy generally sets forth most of the parties involved in a building project as "insurees": the client, the architect, the general contractor, the subcontractors, the design offices… However, just because they are insurees doesn´t mean that they also have an insurable interest in the intervention of the insurer and are entitled to compensation in case of a loss event . . .

Section I of a classic CAR policy covers damage to the works in progress. For the harm to these works often only the client will be an "insuree" who can claim compensation from the insurer, given that he, after incorporation of the building materials, shall be regarded as the owner of the works performed (with possibly an exception for reservations of title). The contractor, the architect, the subcontractors… are indeed listed as "insurees", but they will rarely have an insurable interest under section I of a normal CAR policy in the event of damage to the works. They are merely owners of their own equipment or e.g. of any still-unprocessed building materials at the worksite.

As a result, contractors, architects, subcontractors, etc. will not be able to usefully address the CAR insurer first in case of a loss event where the already-executed works were damaged.

Also: just because they are mentioned as insurees in the CAR policy doesn’t mean that they are immune from recourse by the insurer. In general, an insurer who pays a compensation to an insuree or a harmed party steps into the rights of this insuree or harmed party for the amount of this compensation against the liable third parties (art. 95 of the Belgian Insurance Act). In a 24 February 2017 decision on coverage under a CAR insurance policy, the Court of Cassation ruled that "an insuree" can also be such a third party. The Court expressly states that an insuree (in this case, the architect) is nevertheless "a third party" if the insurer grants no coverage to him for the specific loss event, but does cover a different insuree (the client). As a result, the insurer can in principle step into the rights of the harmed client and exercise recourse against the "third party" (the architect), regardless of whether this third party is also mentioned as an insuree in the policy. The challenged decision of the Court of Appeal of Brussels (20th division) had already emphasised the importance of precisely defining who is insured, i.e. (only) "the person to whom the insurer granted the insurance benefit for which the insurer seeks recovery". [1] The challenged decision was confirmed by the Court of Cassation.      

Thus for example an architect can be an insuree under a CAR policy, but he will not be paid any compensation in case of damage that occurs to the works that belong to the client-owner. The latter will be the only insuree entitled to compensation for the insurance benefit involved. If the architect is liable for the damage, the CAR insurer will, after payment to the client, be able to seek recovery against the architect and his professional liability insurer, regardless of the fact that the architect was listed as an insuree under the policy. This also applies naturally for the others who are mentioned as insurees therein, such as e.g. the general contractor, the subcontractors, the design offices… in so far as they are liable for the damage.

Note that this situation is rectified in many CAR policies. They will contain a waiver of recourse in section I, whereby the insurer renounces its possibility to seek recovery from liable "third parties" if the involved liable third party is also mentioned as an insuree in the policy. As a result of this agreed waiver of recourse, the insurer will not be able to target the insurees in recourse or subrogation. Often this waiver clause will mention an exception and e.g. still allow a recovery action against an insuree who has his own (liability)insurance which should intervene or against an insuree who can still himself proceed against yet another liable party who is not mentioned as an insuree under the CAR policy.

This ruling of the Court of Cassation follows the contested decision of the Court of Appeal of Brussels of 27 January 2014, as well as the decisions of the Court of Appeal of Brussels of 12 June 2006 and 27 November 2006, and is in line with the decisions of the Courts of Appeal of Antwerp of 11 December 2013 and of Mons of 14 March 2005. It also concurs with the decisions of the Court of Cassation of 24 June 2013 and 5 November 2012.

[1] Brussels 27 January 2014, TBO 2015, 99, note C. Henskens.

For more information on this topic, you can contact Siegfried Busscher (author and Private Construction Law unit head) and Bob Goedemé (Insurance Law unit head).