Introduction to the French mandatory construction insurance mechanism
French Construction Policies
The French Insurance Code (FIC) incorporates a “two-step” mechanism within construction policies which is mandatory.
The objective is for the building owner to be indemnified as quickly as possible by its “dommages ouvrage” insurer, without having to bear the burden and costs of commencing an action against the contractor and its decennial liability insurer.
The first step
- The building owner must take out dommages ouvrage insurance. This policy covers damage to the building appearing within 10 years as from the acceptance of the works, that affects the solidity of the works and/or makes the works unfit for their purpose (known as “decennial damage”).
- In those circumstances, the dommages ouvrage insurer will pay an indemnity to the building owner so that the owner is able to repair the works in a timely fashion.
The second step
- The contractor must take out liability insurance covering its decennial liability for the above-mentioned damage as required by FIC. This type of insurance is called decennial liability insurance (“assurance de responsabilité décennale”).
- After having paid the building owner, the dommages ouvrage insurer will then bring a subrogatory claim against both the contractor on the basis of its decennial liability and, of course, its insurer.
Lack of Contractual Freedom
Since this is a mandatory insurance mechanism, there is no ability or option to amend/negotiate the requirement for and the wording of exclusion clauses, deductibles and limits of coverage, which are all strictly regulated. Accordingly, only a limited list of exclusions is allowed, the main ones being:
a) wilful, deliberate misconduct
b) consequences of wear and tear, lack of maintenance or abnormal use.
The FIC also states that deductibles are not allowed under the dommages ouvrage insurance. Yet deductibles are acceptable under a decennial liability policy but cannot be enforced against the building owner. In addition, there is no possible limit of coverage for residential buildings. Apart from the housing sector, the amount of the coverage limit is strictly regulated in all other sectors.
As a result of the above, the main issues that arise in a claim are usually in regard to:
- The nature and seriousness of the damage: does the damage affect the solidity of the works or make them unfit for their purpose? If the damage does not qualify as decennial damage, these policies will not apply.
- The possible exclusions: does the damage result, for instance, from the insured’s wilful deliberate misconduct, from wear and tear, lack of maintenance or abnormal use (i.e. What is the cause of the damage)? It follows therefore that if the exclusions apply, there will be no coverage.
- The estimation of the cost of the repair works.
These questions are usually answered by an amicable or court-appointed technical investigation.