Continental European Legislative and Judicial Trends: Developments in French Compulsory Construction Works Insurance: Amendment of Standard Clauses
In France, construction operations are subject to tight regulations that provide for strict liability under Article 1792 ff. of the Civil Code. Under the Loi Spinetta of 1978, they are also subject to two types of compulsory insurance coverage: insurance of the construction contractor’s decennial liability (assurance de la responsabilité décennale du constructeur) and insurance of damage to the construction works (assurance des dommages à l’ouvrage). The scope of the compulsory coverage is specifically described in standard clauses that have been fixed through Ministerial Order (Arrêté). Article L. 243-8 of the French Insurance Code clearly states that any insurance policy acquired to fulfil compulsory construction insurance is expected to provide guarantees that are at least equal to coverage under the standard clauses. Any wording in a policy that does not comply with the standard clauses and is less favorable to the insured, is presumed to be invalid by the courts.
The standard clauses are attached to Article A. 243-1 of the French Insurance Code. Their last revision by the Ministerial Order dated November 19, 2009 was the most significant in several years. Provisions of this Order came into force on November 28, 2009 (Arrêté du 19 novembre 2009 portant actualisation des clauses-types en matière d’assurance-construction, JO du 27 novembre 2009 p. 20428, also available on the website legifrance.gouv.fr).
The standard clauses applicable to liability insurance (Annex I) and the standard clauses applicable to damage insurance (Annex II) have been reviewed in order to integrate amendments implementing legal provisions of Acts of Parliament (Loi n°2006-1771 du 30 décembre 2006, JO 31 décembre 2006 p. 20228 and Loi n° 2008-735 du 28 juillet 2008, JO 29 juillet 2008 p. 12144) and of a Decree (Décret n° 2008-1466 du 22 décembre 2008, JO 31 décembre 2008 p. 20606). Additionally, an Annex III has been created that concerns group liability insurance expressly authorized by the Decree dated December 22, 2008.
Annex I and Annex II: Standard Clauses Applicable to
Liability Insurance and to Damage Insurance
- Limit of coverage
The Act dated December 30, 2006 expressly authorized a coverage limit for work on buildings other than homes. Prior to the introduction of this Act, compulsory coverage under contractors guarantee insurance could not be subject to a limit. The limit should be at least equal to the cost of construction (based on the cost declared by the owner) or at least EUR150 million if the cost of construction is larger than this amount.
This limit also applies to coverage of damage to work being constructed, according to a Parliamentary Act of July, 2008. Standard clauses regarding this type of insurance had already referred to the limit of the cost of the construction of the works, but the new Act introduced the option of limiting coverage to EUR150 million.
- Integration of the existing property
According to Article L. 243-1-1 of the French Insurance Code, amended by a Governmental Order dated June 8, 2005, compulsory coverage does not apply to the property existing prior to the construction works, “except for the buildings which are totally incorporated in the new works and become technically inseparable from it.” This information is now reproduced in all the standard clauses (Annexes I, II & III).
Date of Opening of Building Works
When creating compulsory construction insurance in 1978, the Legislator referred to the notion of “statutory declaration of opening (or beginning) of the works” (déclaration règlementaire d’ouverture de chantier, hereafter DROC). The date of the DROC is key as there is a need to establish initiation of compulsory insurance on a specific date. Unfortunately, no definition of the DROC was provided in French regulations until a decree, dated January 5, 2007, was introduced into the French Urbanism Code. Article R. 424-16 of the Code refers to a declaration made to the mayor of the city where the structure will be built, by the person permitted to build (In France, permission to build is granted by the mayor’s office). Now the amended standard clauses refer in principle to either of these situations:
■ The date of the DROC mentioned in Article R. 424-16 of the French Urbanism Code, regarding works for which permission to build is required
■ The date of the first order to work or the date of the actual beginning of work, for construction projects for which permission to build is not required.
Annex III: Standard Clauses Applicable to Group
Parallel to lobbying for a change in the limit of coverage, a practice has developed in France where a group policy is used to provide decennial liability coverage in situations where several insureds are required to acquire compulsory coverage.
The Decree dated December 22, 2008 expressly authorizes this practice (Article R. 243-1 of the French Insurance Code). The Ministerial Order dated November 19,2009 creates standard clauses regarding group policies (Annex III attached to Article A. 243-1 of the French Insurance Code). Insurers have entered into an agreement to facilitate, for works with a value exceeding EUR15 million excluding VAT, the underwriting of such group policies.
The group policy complements the many policies purchased by the insureds whose decennial liability is incurred. It works as a second line where the first line is coverage under the individual policy taken out by each insured. The standard clause states that the deductible is equal to the limit of coverage stipulated in the individual policy.
In conclusion, the new standard clauses resulting from the Order dated November 19, 2009 do not really bring innovation, but they clarify elements of existing legal
provisions issued by the Parliament or by the Government. However, standard clauses serve as important references for policy comparison in order to ensure that the policies comply with the regulation of construction compulsory coverage.
It is important to note that the new standard clauses apply to policies in force on November 28, 2009 or acquired after this date. As standard clauses set the minimal coverage for compulsory insurance contracts, it is advisable for insurers operating on the French construction risk market to review the wording of policies in order to check their compliance. In addition, it is recommended that reinsurers closely examine the new standard clauses in order to assess the risk they take when covering insurers acting on the French construction market. As the coverages promulgated in the standard clauses are mandatory, they are considered to be more relevant in cases where different policy wording exists that may be less favorable to the insured.