INTRODUCTION The notes that follow are intended as a brief summary and guide to Decennial Liability and the resultant Compulsory Insurance in France. They are not comprehensive and are given merely as a background to the Executive Summary. We believe that there are three essential features which should be stressed from the outset: this is not a new law, nor is it static. There are, regularly, new binding legal precedents which means that the extent of the obligations can change quite substantially over the period of validity of any decennial policy. the decennial liability is a strict liability - to incur liability it is not necessary to be negligent. If there is a defect in the building revealed within 10 years, the sole purpose of identifying whether this results from design, workmanship or the materials used, is to be able to establish who is liable for the cost of repair. This identification process can be long and costly. To accelerate the process, French law has developed the notion of "Responsabilité Solidaire" (i.e. joint liability) under which any contractor or designer can be held responsible for 100% of the cost repair, whilst investigations and legal process continues to discover the precise cause and thereby identify the person or company to whom liability should be attributed. the compulsory insurances are costly. Insurance availability is normally subject to there being a technical audit of the work being done by a Bureau de Contrôle whose fees are borne by the Principal 1 - CODE CIVIL The liability arises under article 1792 of the Code Civil, a free translation of part of which follows :- " Article 1792 of the Code Civil All Constructors of Works are strictly liable towards the principal or the purchaser of the Works, for damage, including that resulting from a vice of the soil, which compromises the solidity of the works and which, by affecting one of their constitutive elements or part of their equipment, renders them improper for their intended use. This liability does not arise, if the Constructor proves that the damage arose from an outside cause. Article 1792.1 - Are deemed to be Constructors of Works : 1
All architects, builders, technicians, or their persons linked to the principal by a "contract of louage d ouvrage". Any person who sells Works, after their completion, which he has built or caused to be built Any person who, acting as the owner s representative, fulfils a role assimilated to one of a "locateur d ouvrage". Author s note; In practice, sub-contractors are also under the same obligation, because the main contractor or his insurer can subrogate against them. Under Article 1972-3, the normal One-year period of a Manufacturer s Warranty in France is extended to 2 Years in relation to equipment (i.e. mechanical or electrical equipment) used in connection with Building Works. Comments The important point here is that the liability relates to all "Works" and not merely " Building Works". Note that the only exoneration relates to damage caused by "outside cause": in other words, this is a strict liability, independent of notions such as fault or negligence. 2 - CODE DES ASSURANCES The Code des Assurances is the Code regrouping insurance law; it is in the Code des Assurances that the compulsory insurance is defined : - " Article L 214-1 of the Code des Assurances L 241.1 L 241.2 Any person who can incur liability base on the presumption established by articles 1792 of the Code Civil in relation to Building Works, must be covered by an insurance. He who effects Building Works for the account of others must be covered by liability insurance. Article L 221. 1 of the Code des Assurances Any person who, acting as owner of the Works, as seller thereof, or as the representative of the owner, seller, causes Building Works to be effected, must effect an insurance prior to commencement thereof, for his own account or for that of the owner or successive purchasers thereof, covering the payment of the full 2
amount of works to repair damage of the type for which the Constructors (article 1792.1), the manufacturers, the importers, or the technical controllers are liable under article 1792 of the Civil Code. " Comments 1) The compulsory insurances relate to "Building Works" only, whereas the liability under the Code Civil applies to all "Works". In French law, Building Works are works which relate to "Buildings" as buildings (which are structures to keep out the weather or to house persons or poperty) : this implies that industrial equipment located in such buildings (e.g. electrical transformers) are not necessarily "Building Works" and therefore not necessarily compulsory insurable. 2) The insurance under article L 241.1 is the standard "Decennial Liability" Insurance. 3) Case law makes a distinctions between - Maîtres d Ouvrage Délégués (basically project consultants or managers to whom the Principal has delegated some of his powers). M.O.D. s are subject to the insurance obligation under Article L241.1 - Assistants au Maître d Ouvrage (consultants who assist the Principal but to whom he has not delegated any power of decision). A.M.O. s are not subject to the obligation under Article L241.1 4) The insurance under article L 241.2 is insured under a policy known as a "Constructeur Non Réalisateur" or a "Decennale Promoteur". Note that this article refers specifically to Property Developers. Tenants who undertake extensive renovation works would also be involved, since ultimately the new fixtures belong to the landlord in law). The coverage is usally effected as an extension to the Dommages OUvrages policy (see item 5 under) 5) The insurance under article L 242.2 is the unusual feature of the law; the insurance is known as the "Dommages Ouvrages" insurance which loosely means a "Principal s Policy". 3
3 - DECENNALE LIABILITY 1) Who should effect the Insurance? Any person participating in Building Works (i.e. mentioned in articles L 241.1 and L 241.2 of the Codes des Assurances). N.B. : "Constructeur non realisateur" or "Decennale Promoteur" insurance is effectively Decennial Liability insurance for persons mentioned in article L 241.2. 2) For what period? Damage revealed after the 1 year period following handover and until the end of the ten year period. N.B. : During the first year, the insurance is on a contingent basis only. 3) For what damage? Liability for damage which : compromises the solidity of the works. or renders them unfit for their intended use (as a building) 4) Facultative Extensions These are extensions of the insurance beyond the legal minimum: they can include liability for collapse of the works prior to handover ; 2 year cover on equipment (Manufacturer s Warranty) ; damage to existing property ; financial loss (loss of use, loss of rent) ; or indeed liability for "Works" (as opposed to "Building Works") 4
Comments The Codes des Assurances lays down the basic policy wording and the requirements for such policies. They cover works for the 10 year period on a risk attaching basis the attachment date being the official Date of Opening of Site (Date règlementaire d ouverture du Chantier popularly known as DROC) which is the subject of a compulsory official declaration tot he authorities. A particular feature of such policies is that they continue to run even if the Insured has ceased to exist (e.g. in liquidation, or deceased). 4 - DECENNIAL DAMAGE - DOMMAGES OUVRAGES 1) Who should effect the Insurance Persons indicated in article L 242.1 of the Code des Assurances, i.e. private individuals, building for themselves or having works being built ; principals ; principals representatives (e.g. tenants) ; developers of buildings for sale ; the seller of a building intended for sale once completed ; house-builders. 2) Who are exempted? public authorities ; private persons/companies falling within the European Community Risk decree, for buildings other than dwellings, built for their own account (see page 10) N.B. Although private individuals building their own dwellings are not exempted, there are at present no penal sanctions for such individuals who do not effect the coverage. 3) Covering which damage? The cost of repair of Decennial - type damage, i.e. that which compromises the solidity of works. renders the building unfit for its use (as a building). It is a legal obligation to effect Full value coverage with NIL deductible. 5
Decennial Dommages Ouvrages insurance is not the same thing as defects insurance, because it is not limited to physical defects. In addition to physical defects, the following could give rise to decennial liability and repair costs: inadequate sound-proofing in dwellings inadequate insulation against excessive solar heat on glass façade buildings, inadequate air-conditioning in badly insulated office buildings inadequate number of lifts in an office building inadequate emergency ingress/egress facilities However it does NOT cover defects which do not render a building unfit for its use as a building. Examples include - green spaces - industrial or office machinery in the building - theft alarms - building management systems designed to reduce operating costs - aesthetic defects (e.g. paintwork,) furnishings such as carpets (but they would be covered if they had to be replaced because the surface on which they were applied and glued had to be rebuilt) 4) For how long? Cover is in force for 10 years from date of handover. However, during the first year, the insurance only applies (a) when the liable constructor has gone bankrupt, or, (b) when after due notice the liable constructor has not completed repairs. 5) Facultative Extensions of Cover These relate to coverages which are not compulsory insurable under article L 242.1 of the Code des Assurances : they are available on a limited first loss basis at relatively modest extra cost : - Equipment equipment which can be detached from the building for 2 years (being the period of the Manufacturer s Warranty) Financial Loss financial loss resulting from damage in (3) above period of insurance : 10 years 6
Existing Property Damage to pre-existing property resulting from decennale-type damage to New Works incorporated therein (e.g. works to modernise an existing structure). Modest deductibles are acceptable for the Facultative Extensions (usually between 1.000 and 5.000) 6) How are claims settled? The Code des Assurances lays down a very precise procedure for claims settlement. A "Dommages Ouvrages" Policy is specifically designed to pre-finance repair works. On the occurrence of a claim which is likely to give rise to decennial liability on the part of a "Constructor" as defined in the Civil Code, the insurers must "notify the Insured of their decision as to the principle of coverage under the policy" within 60 days of receipt of the declaration of loss, having previously given to the Insured a copy of the loss adjuster s preliminary report. This means that the insurer has 60 days to decide if the loss is covered. The law lays down precise procedure regarding the choice of a loss adjuster acceptable to both parties, and also as to what should be done if the insurers maintain that the loss is not covered. Subsequently:- Within 90 days of the date of declaration of loss, and assuming that the notification referred to above takes the form of an acceptance that the claim is indeed covered, the insurer must make the insured an "offer of indemnity " (which can be on a "provisional basis") and the amount of this offer is designed to cover the "payment of works to repair the damage". Provided the insured accepts this in writing, the provisional indemnity must be paid within 105 days. If however the insurer is justified in so doing by "exceptional difficulties due to the nature and importance of the loss" and subject to "purely technical considerations", when making the notification as to whether the claim is covered or not the Insurer can also ask for the 105 day period to be extended to 195 days. Such extensions are common. The effect of the foregoing is to ensure that an indemnity - albeit provisional - is theoretically paid within 105 days of notification of claim: the purpose is to ensure that repair works can be made promptly. 7
When the indemnity has been paid, the insurer can attempt to recover the amount thereof from whichever "Constructor" is liable at law (or from the Constructor s Decennial Liability Insurance Policy). In practice, in circumstances when there are "exceptional difficulties due to the nature and importance of the loss", the "Dommages Ouvrages" insurer can ask for extensions of the loss settlement period. There is an agreement between French insurers under which a subrogation action made by a "Dommages Ouvrages" insurer is accepted automatically under the relevant "Decennale Liability" policy, providing the loss does not exceed approximately 100.000 Euros. When it does, if the "Dommages Ouvrages" insurer pays the building owner who then does the repair work, it is very difficult for the "Dommages Ouvrages" insurer to subrogate effectively - because the evidence has disappeared. Therefore, in the case of losses exceeding 100.000 Euros, the "Dommages Ouvrages" insurers systematically invoke the "exceptional difficulty" clause and the settlement process can then take not merely months, but years. Therefore, large or complicated claims are rarely settled promptly. Legal action against the insurance company for execution of contract under the Dommages Ouvrages policy, would interrupt the loss settlement period. 5 - EXEMPTIONS FROM THE LEGAL OBLIGATION TO EFFECT DOMMAGES OUVRAGES INSURANCE The following are exempted from the legal obligation to effect Dommages Ouvrages insurance: - Entities subject to "Droit Public" (i.e. government and government agencies) - Companies employing more than 250 people within the European Community, having balance sheet total exceeding 6.200.000 Euros, and with a net turnover of at least 12.000.000 Euros providing the building is not to be used as a dwelling and providing it is being built to be used by the Principal. - Private individuals buildings dwellings for their own occupation they are under the obligation but there are no penal sanctions for failure to insure. The exemptions therefore do not apply to any building intended to be sold after completion, or to any building work done by a tenant. Further, even for cases benefiting from an exemption, it is often the case that - Banks providing finance will insist on their being full decennial insurance 8
- Subsequent purchasers may make the existence of insurance a condition of purchase and it is virtually impossible to arrange cover retoactively Therefore, even for major industrial or commercial projects, it is usual for these to be insured under a Dommages Ouvrages policy. 9