uConstruction insurance in France
The French system was designed to provide the principal with effective protection against major damage that can occur or come to light in the decade that follows completion of the building.
The decennial liability also known as ten-year guarantee was imposed in 1978 with the Spinetta Law.
Constructors – and any other participant to the construction – are fully liable for all material damages to the works during a period of 10 years after completion of works, even if it results from a ground defect which endangers the stability of the works or makes them unsuitable
for the intended use by affecting one of its components or equipment.
It’s a double trigger system:
• Legally mandated decennial liability insurance for constructors. They must be able to prove that such an insurance has been taken out by them to cover this liability, at the beginning of the works.
• Legally mandated pre-financing insurance for principals (Contractors, Investors or Property Developers). Therefore, the principal must take out an insurance cover before the beginning of works, in his name or on behalf of succeeding owners, sufficient to cover, independently of any pursuit of liability, payment for repair of all such damage.
The decennial cover takes effect at the date of acceptance of the works by the principal. That
acceptance of works is defined by law (article 1792-6 French Civil code).
The notion of EPERS manufacturers
All the manufacturers can be affected by an assumption of liability. The legislator’s aim in enacting this law is for the manufacturer to be jointly liable in certain cases with the builder.
Note on “E.P.E.R.S” Products
E.P.E.R.S is the abbreviation for “Eléments Pouvant Entraîner la Responsabilité Solidaire” i.e. Elements Able to Provoke the Connected Liability.
Four cumulative conditions have to be fulfilled:
• The design is forwarded.
• Special pre-determination for a final specific use
• Made to meet with specific demands, determined in advance
• Incorporation without any modification
The main consequences
Insurers must be licensed
For example ACE, CHUBB, CNA…. are not licensed for legally mandated decennial
insurance.
Capitalization system
The premium of the year (Decennial Liability) and the premium of the works (Dommages
Ouvrage) have to be kept and capitalized by the insurer so as to be able to pay the
claims inherent to the works, for a period of 10 years.
Form wording
automatic clauses, dictated by the law
Claims
Claims instruction is legally determined (i.e. timetable for instruction and legal penalties)
All participants must be insured for the global amount of works.
Decennial insurance market
This very exclusive market was originally 100 % French. It is now confronted with the arrival of new actors: European insurers operating under the freedom to provide services (FPS).
Only a dozen of insurers are active on the market, 3 majors in dominant position (SMA – AXA – ALLIANZ). The same is true for the reinsurance market where only 5 reinsurers – French, Swiss and German – are recognized and able to deliver capitalization funds. The cost of the premiums is high and the underwriting of these insurances is technical and complex, especially for foreign construction companies coming to work in France.
In accordance with Directive 2006/123/CE of European Parliament, the number of insurance
companies from other member states in the European Economic Area (EEA) authorized to do business in France under the FPS flourished for a time. Those insurers offer disproportionate pricing conditions and convenient underwriting – they registered spectacular results and growth.
This market opening is beneficial to the consumer. Nevertheless, FPS often hides the creation of reinsurance solutions in faraway countries that have no competence to deal with capitalization and they do not accede to the Convention de Règlement de l’Assurance Construction (French Convention of Construction insurance settlement).
Note that one of these insurers who was the first to enter the French market, GABLE INSURANCE (based in Liechtenstein) recently went bankrupt and closed: consequently, all companies insured by GABLE are no longer covered for their current decennial risks, and no traditional insurer wants to take back all these current guarantees.
Tax Alert: Terrorism contribution to increase to EUR 5.90 in 2017
The French contribution to the Common Fund for Victims of Terrorism (Fonds de garantie des victims du terrorisme FGTI) will increase from EUR 4.30 to EUR 5.90 per contract from January 1, 2017.
The Terrorism Insurance Fee will increase from EUR 4.30 to EUR 5.90 per policy. It is applicable for about 87 million property damages policies including Automobile and Household polices and should generate about 140 supplementary million € per year for the Guarantee Fund for Terrorism Victims (Fonds de garantie des victimes du terrorisme FGTI).
On January 1, 2016, this tax had already been increased from EUR 3.30 to EUR 4.30. Due to the latest terrorist attacks in France, it was necessary to extend the fund.
Created in 1986, this Fund collected about EUR 300 million per year. Until 2014, the paid indemnities for terrorism victims were less than EUR 5 million per year for 4 000 victims from 1986 to 2014. The last 2 years, the Fund has been solicited the most for the attack of November 13, 2015 in Paris as well as for the attack of July 14, 2016 in Nice and will pay EUR 300 – 350 million per event.
Finally, the French Government will act as guarantor in case of exhaustion of the Fund. The Fund has also been asked by the state to work on an “indemnity scale” for the victims to standardize their compensation.
(Source: Diot Est)
