What insurances are the parties required to hold? And how long for?

Construction (2nd edition)

Australia Small Flag Australia

By law, parties to a construction contract are required to hold workers' compensation insurance and motor vehicle third party personal injury insurance for registered plant and motor vehicles. Contract terms will often require parties to hold other insurances for the duration of the project (in descending order of prevalence):

  • contract works insurance;
  • public liability insurance for on and offsite work;
  • professional indemnity insurance for consultants or where a contractor undertakes design obligations (usually required to be held for 6 years after practical completion, because of the 'claims made' nature of such insurance);
  • transit insurance for items transported to the site for incorporation into the works (optional);
  • insurance of contractor's plant and equipment
  • advance loss of profits insurance (optional).

The principal will insure any existing buildings, and is responsible for the finished works from the date of practical completion. On very large infrastructure projects, a project-specific program of insurance will usually be put in place by the principal.

Belgium Small Flag Belgium

Insurance for the decennial liability of building contractors and other service providers (such as architects, security coordinators, land surveyors and consultancy agencies) is mandatory as from July the 1st of 2018.

As for public construction projects, the Royal decree of 14 January 2013 on the general rules of performance of public procurement contracts requires contractors to be insured against industrial accidents and accidents which cause damages to third parties.

Besides the abovementioned insurance obligations, Belgian law does not impose any additional insurances on contractors and/or employers. Very often though, especially for important projects, a CAR (Construction All Risks) is put into place.

China Small Flag China

It’s general practice for construction contracts to require all-risks insurance (usually until project completion), work-related injury insurance for migrant workers, accident insurance for personnel dealing with dangerous operations, professional liability insurance, cargo transportation insurance, and stored goods insurance. Among the above, work-related injury insurance and accident insurance for personnel dealing with dangerous operations are compulsory under law. Moreover, most of the foregoing insurances are also required by the local legislations or local regulatory documents where the project is located.

Croatia Small Flag Croatia

The contractor is usually required to hold insurances for the works, equipment, for the contractor's personnel and third-party liability insurance. In most cases, insurances are held until the taking-over of the works, except for the third-party liability insurance for which it could be required to be held until the expiry of the defects liability period.

Germany Small Flag Germany

The public liability insurance (Betriebshaftpflichtversicherung) covers the liability risks of traders and industrial companies, freelancers and craftsmen. Such insurance is required by most clients and made a condition of a contract. It is common to have a construction all risk insurance (Bauleistungsversicherung) on large projects, provided for by the customer.

Greece Small Flag Greece

The most common insurance that parties are required to hold in construction projects is the Construction All Risks (CAR) insurance. Less frequently the parties agree to take out Delay in Start Up (DSU) insurance policies that provide coverage for the anticipated revenue generated from developing and executing construction projects.

Switzerland Small Flag Switzerland

Parties are required to hold different insurances: the principal must hold a principal’s civil liability insurance as well as construction works insurance. The contractor must hold a contractor’s civil liability insurance, a building insurance, a fire and elementary damages insurance, and insurance for materials and tools brought to the worksite by the contractor. These insurances need to be in place during performance of the works. A ground-up insurance is sometimes put in place for construction sites of a long duration and with several actors involved.

United States Small Flag United States

Parties to a construction contract often procure multiple types of insurance coverage to account for different types of risk. These insurance products fall under either first party coverage or third party coverage. First party coverage applies to and protects an organizations own physical assets, such as equipment, buildings, and personal property. Third party coverage, also known as liability or casualty insurance, covers the insured’s liability for damages to third parties.

A typical first party insurance is known as Builder’s Risk insurance, which covers loss or damage to the work during construction, including losses arising from the negligence of contractors and other acts of god. Builder’s Risk is often provided on an “all risk” basis, which means that all risks of physical loss or damage to property is covered, unless otherwise excluded. Other types of first party coverage typically carried are Worker’s Compensation insurance, which covers injuries to employees suffered in the course of their employment, and Automobile Liability insurance, which covers parties who may be traveling to the construction site. Owner’s generally procure Builder’s Risk, while contractors generally procure Worker’s Compensation and Automobile Liability insurance.

A typical third party insurance is Commercial General Liability (“CGL”) insurance, which protects the insured against third-party claims and lawsuits for bodily injury or property damage arising out of its business operations. Another type of third party insurance is professional liability coverage (also called Errors & Omissions coverage), which covers losses arising from services deemed “professional” in nature, such as architects and engineers. The difference between a CGL policy and a professional liability policy is that the later covers purely economic losses, while the former only covers claims for bodily injury or property damage.

Parties may procure other types of insurance not automatically provided for in the aforementioned types of coverage, such as coverage for environmental and pollution exposure, land acquisition, financing, zoning, and other aspects of construction, although these policies tend to be more expensive.

The length of the policy period can vary, but is generally the anticipated length of the project or the duration of the contract period. Sometimes policies are required for longer durations to cover warranty periods or claims periods for defective workmanship.

Austria Small Flag Austria

The Austrian trading regulations provide that contractors or entrepreneurs in related construction sectors are required to take out liability insurance in defined amounts. For builders, the law requires liability insurance of at least EUR 1,000,000.00.

Cyprus Small Flag Cyprus

Contractors All Risk Insurance is an insurance policy that covers all risks associated normally with a construction project. Issued commonly under the joint names of a contractor and a principal (client), it is usually also including public liability insurance.

Period of Cover until the time the contractor leaves the site or others may be in-force for a longer maintenance period, after the owner takes control of the property but while the contractor continues to remedy minor defects.

Brazil Small Flag Brazil

Brazilian law imposes mandatory insurances to be contracted and maintained for construction-related projects, as follows: (i) civil liability for real estate contractors of urban zone constructions with respect to bodily injury and physical damage injuries and property damage, during all construction period; (ii) assets encumbered as guarantees of loans or financings granted by public financing institutions; (iii) guarantees of the real estate developer and builder, until construction is complete; (iv) guarantees of payment of the borrower related to construction, including real estate obligations; and (v) insurance against fire or total/partial destruction of buildings (Article 1,346 of BCC).

Besides that, the following non-compulsory insurances are usually required within the scope of construction projects: (i) engineering risks ("All Risks"); (ii) Third parties' civil liability ("OCC/IM"); (iii) miscellaneous risks insurance regarding mobile and stationary equipment; (iv) bodily injury and physical damage and life coverage for builder's employees; and (v) environmental risks.

Nevertheless, the parties may also agree on other insurance policies that serve the interests of both, especially in the context of highly complex infrastructure projects.

Ireland Small Flag Ireland

There are no insurances related to a construction project required by statute other than motor vehicle insurance. However, a construction contract will typically require the following insurances:

  • insurance of the works (usually referred to as ‘all risks’ insurance), taken out by either the employer or the contractor, covering loss or damage to the work executed and site materials up to practical completion in the joint names of both parties to the contract;
  • public liability insurance, covering claims in relation to death or injury to third parties or damage to property other than the construction works;
  • employer’s liability insurance, to be taken out by the contractor to cover the injury or death of its employees; and
  • professional indemnity insurance (PI), to cover design liability and to be taken out by any party carrying out design (including the contractor where it is doing some design under the contract). PI policies cover the insured against claims for professional negligence and are usually required to be in place from commencement of the work or services until six years (and sometimes 12 years) after practical completion.

The parties may agree that a project may also require specific insurance policies or overall project insurance. Although not universal, latent defects insurance products are available on the Irish market.

The parties may agree that a project may also require specific insurance policies or overall project insurance. Although not universal, latent defects insurance products are available on the Irish market.

Mexico Small Flag Mexico

In most of the cases, all risk insurance, civil liability insurance and in certain situations, auto and professional liability insurances are requested. All these insurances have to remain valid during the term of the contract.

United Kingdom Small Flag United Kingdom

The types of insurance most often required are:

  • All risks insurance covering physical damage to the works and site materials is typically maintained by the contractor for a new building until practical completion, and by the employer for refurbishments and some major projects;
  • Public liability insurance (covering defects in design) is typically required from consultants and design and build contractors, and must be renewed for the duration of their liability;
  • Professional indemnity insurance must be maintained throughout the insured professional’s period of liability;
  • Employers' liability insurance is maintained throughout the period of employment: this is the only insurance required by statute.

On some PPP projects, particularly those creating an income generating asset, additional insurances such as delayed start-up (DSU), and advanced loss of profit (ALOP) insurance may be required. These respond when the income stream is delayed or affected by a shut-down. These are maintained during the life of the works.

Most contractors are covered for all of their projects by annual insurance policies.

Spain Small Flag Spain

It is regulated in Article 17.1 of the Law of Building Regulation, which states:

"1. Without prejudice to their contractual responsibilities, the natural or legal persons involved in the construction process will be liable to the owners and the third party acquirers of the buildings or part of them, in the event that they are subject to division, of the following material damages caused in the building within the indicated periods, counted from the date of reception of the work, without reservations or from the rectification of these:

a) For ten years, of the material damage caused to the building by defects or defects that affect the foundation, the supports, the beams, the slabs, the load-bearing walls or other structural elements, and which directly compromise the mechanical resistance and the stability of the building.

b) During three years, of the material damages caused in the building by defects or defects of the constructive elements or of the installations that cause the breach of the habitability requirements of paragraph 1, letter c), of article 3 ".

It is mandatory for the developer and construction company to sign the ten-year liability insurance that covers for a period of 10 years the vices or defects that affect the foundations or structure of the building.

For this, this insurance must be contracted before the works begin and the insurance company requires the intervention of a technical control body (O.C.T.) for the control during the execution of the works, without whose validation the insurance is not granted.

Normally, the following insurance policies are contracted during the construction process:

A) On behalf of the PROMOTER:

Ten-year damage insurance

  • Obligatory by Law.
  • It is contracted before starting construction.
  • It has a coverage of 10 years from the completion of construction, with the insured being the purchasers of the homes.
  • Non-renewable policy, one part being paid upon contracting the Insurance and the rest upon completion of the work.

Accident insurance

  • Obligatory by Law.
  • The coverages will be those indicated each year in the Collective Agreement of construction.
  • It has to cover all the people registered in the TC2 of the Promoting Company.
  • It is a renewable annual policy.

Insurance of consolidation of quantities

  • Obligatory by Law.
  • Cover the amounts advanced by the purchasers of the homes if the promotion is not carried out or the end of the promotion is delayed beyond what is indicated in their contracts.
  • It is a single payment policy, not renewable.

Liability insurance

  • Not required.
  • It covers the responsibility of the Promoter vis-à-vis third parties, including its own workers, as well as the joint and several liability with other intervenors who may be convicted.
  • It is a renewable policy of annual character.

B) On the part of the BUILDER:

Construction risk insurance

  • Not required.
  • It covers the damages produced in the own work during the execution of the same (fire, flood, etc.)
  • Single payment policy, non-renewable. The coverage period is the same as the duration of the work.

Accident insurance

  • Obligatory by Law.
  • The coverages will be those indicated by the Collective Agreement of construction every year.
  • It must cover all the people registered in TC2 of the Construction Company.
  • It is a renewable annual policy.

Liability insurance

  • Not required.
  • It covers the responsibility of the Constructor against third parties, including its own workers, as well as the joint and several liabilities that could be condemned.
  • It is a renewable policy of annual character.

C) In relation to the SUBCONTRACTOR COMPANIES:

Accident insurance

  • Obligatory by Law.
  • The coverages will be those indicated in the Collective Agreement of construction every year.
  • It must cover all the people registered in the TC2 of the Company or Autonomous.
  • It is a renewable annual policy.

Liability insurance

  • Not required.
  • It covers the responsibility of the Contractor in front of third parties and in front of the main contractor, as well as the joint and several liabilities to which he could be convicted.
  • It is a renewable policy of annual character.

The developer must demand the builder, and the builder the subcontractors, the insurance policy and the last proof of payment of the premium.

Turkey Small Flag Turkey

The contractor is typically expected to obtain a construction all-risk insurance, employer’s liability insurance, third party liability insurance, product liability insurance policies. Additionally, if the contract contemplates a design element, a professional indemnity insurance is also required.

South Africa Small Flag South Africa

There is no industry specific insurance which is required by law however, contractors and employers will typically agree to procure the following types of insurance, dependant on their risk profile under the relevant contract and the agreement reached by the parties in relation to specific cover required:

(a) All-risk insurance covering damage to the works, premises and site materials;
(b) Public liability insurance;
(c) Professional indemnity insurance (this is particularly important for design, engineer and build projects); and
(d) Special-risk insurance through SASRIA SOC Ltd (“SASRIA”). SASRIA is a state-owned company which provides special risk cover to businesses in South Africa (and government entities) against civil commotion, public disorder, strikes, riots and terrorism. SASRIA is mandated by legislation to offer such insurance but does not oblige companies to procure such insurance.
In addition, where contractors act as employers, they are required to:

(a) register with the Compensation Fund for the Compensation for Occupational Injuries and Diseases Act, 1993, or with a licensed insurer.
(b) under the Construction Regulations prescribed in terms of OH&S Act, ensure that “Principal Contractors” are registered and are in good standing with the compensation fund or a licensed insurer.
(c) Register with the Unemployment Insurance Fund under the Unemployment Insurance Act, 63 of 2001.

France Small Flag France

The following insurance coverage is generally applicable (for private contracts):

  • an owners’ all risk liability (multirisque propriétaire) to be subscribed by the project owner. This coverage shall be maintained at all time by the project owner, as long as it will own the building;

  • an “all risks work site” (tous risques chantiers) policy to be subscribed by the project owner. This policy will last for the duration of the construction works;
  • a dommage-ouvrage insurance policy to be subscribed by the project owner (to pre-finance repairs in case of damage covered by the decennial guarantee). This policy will cover damages for a period of ten years following the acceptance of the works;
  • decennial liability insurance policies (responsabilité civile décennale), to be subscribed by the project owner and all the parties (contractors and consultants) whose liability can be triggered under the decennial guarantee mechanism, for a period of ten years following the acceptance of the works;
  • for large projects, a collective contract of decennial liability (contrat collectif de responsabilité décennale), in order to provide a general top-up insurance coverage above the cap of the individual decennial liability insurance policies of the parties (this policy as the same duration as the decennial liability insurance policies);
  • a professional liability insurance (responsabilité civile professionnelle), to be subscribed and maintained by all the contractors and consultants for the duration of their agreements.

Sweden Small Flag Sweden

By default in the General Conditions, the contractor is obliged to have both a third party liability insurance covering potential claims for damages as well as a contractor’s all-risk insurance, covering potential damages on the construction works for 10 years counting from the hand-over/completion. Consultants who perform design work according to ABK 09 only need professional indemnity insurance. In addition to the requirements in the General Conditions, a certain standard negotiated between the Construction Contracts Committee, BKK, and the insurance industry – Appendix 1 to AMA AF 12 (BKK’s specification of minimum cover for all risk insurance and liability insurance for construction projects) – is often referred to in construction contracts as the minimum level of insurance cover. There are also compulsory insurances by law that an employer shall hold in relation to its employees.

The employer is advised to obtain insurance that covers the liabilities ascribed through law to either the developer or the owner of a property, most commonly known as a “developer insurance” (Sw. byggherreansvarsförsäkring).

Denmark Small Flag Denmark

Under AB 18 /ABT 18, the employer must take out insurance that covers damage due to fire and storms with an insurance period from the commencement of the work and until the time when all defects discovered at the hand-over have been rectified.

The employer may choose an all-risk insurance instead; however, an all-risk insurance does not cover all types of damage.

The contractor must take out statutory liability and product liability insurance. The consultant must take out usual professional liability insurance.

Furthermore, any company with employees must obtain statutory industrial injuries insurance.

South Korea Small Flag South Korea

- Parties are required to hold Industrial Accident Compensation Insurance under the Industrial Accident Compensation Insurance Act. In most cases, employers will also hold liability insurance.

- Other types of insurance that parties will typically obtain are:

  • All risks insurance, which insures against physical damage to the works or materials;
  • Professional indemnity insurance, which insures against claims related to the design of the project;
  • Workmen’s Compensation Insurance, which compensates death or injury caused to workers to the extent not covered by the Industrial Accident Compensation Insurance; and
  • Commercial general liability insurance.

Updated: June 3, 2019