The opening of the European Community has meant free circulation of people, goods, capital and services. However, it is clear to all that European countries are far from having harmonised the liability and insurance issues that face the construction industry.

A brief overview with Jean-Christophe Gaston, in charge of insurance for the GSE Group.

In terms of insurance, can one find in Europe today a single, global insurance program which provides the same cover for each construction project, regardless of the country where it is being built ?

J.C. G.: In France you have the assumption of liability and the obligation to take out compulsory insurance for any project built in France. However this is not the case in other countries. In Germany, Spain, Italy and Belgium, there are different schemes which do not require compulsory insurance for construction projects built within the scope of private contracts for industrial buildings.

So there is no standard type of international insurance scheme that can be applied ?

J.C. G.: Given this diversity in country regulations, and given GSE’s concern with providing the same quality of service to all its clients, the GSE approach has been to standardise its own offer on the international scale, and to propose the same coverage wherever the building is going up. This applies both to Europe and to other countries throughout the world, including China, where GSE has been working with its longstanding clients for over ten years.

From the actual constructional viewpoint on site, a building built in Spain will have approximately the same technical characteristics as a building built in Italy. This makes it possible to provide similar coverage. Here, GSE offers a ten-year insurance policy covering building solidity. The coverage starts the date of building acceptance. This type of insurance protects the investment. In the event of building damage, the amount of the repair is covered by the insurance.

However, this is not compulsory. Yet with such coverage, the building is covered by the same guarantees – ten years for waterproofing defects, ten years for the solidity of the carcassing and finishing works packages, regardless of the geographical location. The investor sees that his real estate holdings are totally protected. Likewise, if the building is sold, it continues to be protected for this ten-year coverage is transferred to the successive owners.

All countries recognise the builder’s liability – but is that liability identical everywhere, and does it automatically entail insurance coverage ?

J.C. G.: It is important to make the distinction between the notion of responsibility, or liability, and the notion of insurance coverage. Indeed, just because the builder is deemed to be liable does not mean that he is automatically insured for the construction of a building. Thus, except for France, where we just described how the two are related, in all the other European countries, builders are subject to varying periods of liability depending on the parts of the building involved (structure, carcassing, waterproofing…) and yet are not necessarily required to have insurance.

So each country has a different legal framework ?

J.C. G.: Indeed they do. Let’s look at the example of Spain, where according to a 1999 law referred to as “LOE”, the builder is liable, over a ten-year period, for all aspects involving structural safety (mechanical strength and construction stability of the building). The liability period is three years for waterproofing defects or questions of “livability” of the building, and one year for performance defects (which corresponds to the completion bond or “année de parfait achèvement” in France).

In England, the liability systems result from Common Law – general, unwritten law – which gives owners the possibility of suing builders “in contract” (and contracts are highly specific with respect to defining reciprocal undertakings and responsibilities) and “in tort” where the builder is liable for a 15-year period following completion of the work.

In Italy, the sub-contractor is solely liable to the owner for liability defined by the provisions of articles 1667 and 1669 of the civil code, which entails 2 years for all latent defects in the building and 10 years for serious damage which jeopardises construction solidity or which arises from a  soil-related defect.

If there is no 10-year coverage such as GSE offers, what happens in the case of a claim ?

J.C. G.: An elementary precaution to take, but one that it is important to put into words ahead of time, is that it is essential to verify the financial solidity of the partner to whom you will be assigning the design and construction of your building. 

• In the event of a claim, and if the builder were to disappear, the owner can find himself alone – and without insurance – facing the damage to be repaired. 
• The second point to look carefully at is the contractual conditions granted by the builder, and his position with respect to his undertakings. At this level, the civil liability insurance coverage guarantees are likely to be invoked to cover the damage which has occurred. 
• In all cases, the repair work is going to depend on the financial soundness of the construction group and their determination to work with you beyond the actual construction period (and completion bond year).  
• Clearly, there is no transfer of risk to an insurance company and thus no guarantee – over time – covering the amount that repair would cost.
• It is easy to imagine that a large claim can involve more than one sub-contractor. This can require several joint surveys to identify each party’s liability. And this can take 3 to 4 years.

Why is France the pioneer in the area of construction insurance ?

J.C. G.: In France, since 1978, the law known as the Spineta law has obliged owners to take out building damage insurance for a firm period of 10 years starting at the time of building acceptance. Since the inception of this law, insurers have acquired significant expertise and have built up data bases on claims statistics. They are very good at understanding the risk in the ten-year guarantee.

The long-term guarantee proposed by GSE is based on this experience and is able to allay the many disparities that exist in Europe on the insurance scene. The GSE coverage can apply to all European countries, whether the project is built in Poland, Ukraine or Italy, it can be covered by the same guarantees.

Practically speaking, how does this apply ?

J.C. G.: In choosing this offer, an Anglo-Saxon investment fund, for example which is investing in Poland, is ensured 10-year protection covering the building starting from building acceptance. In addition, throughout the construction of the building, the owner benefits from the intervention of the technical engineering office whose job it is to validate and control project design and proper construction on the site. This is a condition sine qua non to obtain the long-term insurance coverage.