1. PROFESSIONAL CIVIL LIABILITY
Professional liability is the liability a person can incur when exercising his/her profession
and consists of contractual and non-contractual liability. The fact that damage has occurred due to poor performance of the contract is sufficient. No additional error, such as a breach of the rules of good practice or an infringement of a statutory provision, needs to have been committed.
A direct link with the actual professional activity of the insured is, however, required in all cases. In the case of an architect, for example, performing a calculation incorrectly is a contractual error against which he/she is insured. Failure by that same architect to repay a loan is also a contractual error, but is not an error that is actually covered by insurance, of course.
2. FOR WHOM IS INSURANCE COMPULSORY IN THE CONSTRUCTION SECTOR?
Any party involved in the construction process can be liable for an error that occurs while performing his or her profession. Nevertheless, legislators have limited the obligation to take out insurance to certain professions only.
The obligation to take out insurance applies to service-providers primarily performing services of an intellectual and predominantly non-material nature. This obligation has been imposed upon practitioners of professionals providing services of an intellectual nature in relation to professional errors committed by them and their employees.
The Act has a broader scope of application than the Act introducing an obligation to take out insurance covering the ten-year liability period, as it is not limited to works for which the involvement of an architect is a requirement or to works relating solely to residential developments, etc.
The Act actually applies to services of an intellectual nature concerning any type of real estate property in Belgium, regardless of the type of building involved.
The determining factor is that the activity performed concerns intellectual services that are primarily of a non-material nature.
3. ARCHITECTS – EXPERT LAND SURVEYORS – HEALTH AND SAFETY COORDINATORS – “OTHER SERVICE-PROVIDERS IN THE CONSTRUCTION SECTOR”
Architects, expert land surveyors and health and safety coordinators are explicitly named in the Act, which means that the fact they are obliged to take out insurance is not in doubt.
That obligation applies in relation to all services they perform, including those in relation to the finishing and the technology. The restriction limiting this obligation to the “watertight shell of the building”, which applies under the Act introducing an obligation to take out insurance covering the ten-year liability period, does not form part of this Act.
The term “other service-providers in the construction sector” is a residual category. Its purpose is to ensure that any supplier of services in the construction sector providing services of a predominantly non-material nature is included within the requirement to take out insurance cover.
Any service provider, such as an engineer, technology consultant, acoustics consultant, lighting adviser, interior architect, project manager, quantity surveyor, energy performance and indoor climate (EPB) adviser, energy expert, BIM coordinator, etc., who has provided advice or has carried out a study on the basis of which he/she could incur liability, is obliged to take out insurance.
The obligation to take out insurance therefore does not apply to building contractors performing material works of an immoveable nature.
If a building contractor has also carried out a study, that contractor will not be subject to the obligation to take out insurance if the study is subordinate in relation to the rest of the works it has carried out. In some specific cases, it may be necessary to seek an opinion in that regard.
4. EXCLUSIONS
The fact that the Act is obligatory does not imply that all types of losses or damage have been insured. A considerable number of potential exclusions also apply under the Act. The insured must take care to ensure that the object of the insurance has not actually been eroded, as a result of which he/she may well think he/she is insured, whilst that is actually not the case.
We will now discuss a number of possible exclusions that the insurer may attempt to impose in connection with the Act.
- Losses incurred with regard to the costs of recommencing or correcting a service performed poorly may be excluded.
Losses resulting from an incorrect study cannot, however, be excluded. This is generally known as consequential loss. As a result, if a water outlet is incorrectly designed and water damage occurs, the cost of drawing up a new design can be excluded, but the water damage resulting from the incorrect design cannot.
The reason for this exclusion is that the insured will first need to carry out a repair in kind, by performing the service (again, but this time, correctly) at its own expense. Whether this will be possible in all cases or will actually be desirable is still the question, however.
- In most cases, the insurer will apply an exclusion, preventing it from having to bear the cost of contractual, administrative and financial penalties that the insured may be obliged to pay.
- Claims in relation to advice associated with the choice and location of an installation may also be excluded, in so far as those claims relate to the financial or economic loss resulting from that choice, such as in the case of a wind turbine that fails to achieve the stated output.
Claims relating to cost-estimate or budget overruns, to errors committed when calculating costs, to disputes or to the withholding of fees may possibly be excluded.
The reason for their exclusion is because the insurer wishes to cover itself against fraud by the insured, such as intentionally including a budget in the contract, in which the amounts stated are too low. This exclusion may mean that an important task carried out by the architect, which previously was covered by insurance, is removed from the object of the insurance policy. Nevertheless, exceptional cases of fraud can be addressed by means of the Insurance Act.
When reading all of the exclusions, a number of categories of professionals may justifiably wonder: what am I actually insured for? Take, for example, the situation of an architect, as referred to above, whose task is to monitor the budget, but who may not be insured for any potential overrun of the budget. We therefore recommend checking the policy very carefully and, if applicable, not accepting exclusions. As an alternative, you can always apply for a policy with a different insurer.
5. DIRECT CLAIM
If an aggrieved party establishes that the counterparty’s insurance will not provide indemnity because the policy has been hollowed out to such substantial degree, can the aggrieved party then seek redress from that insurer directly, in its own right?
Submitting a claim against the insured directly in this way is not automatically provided for under the Act.
However, it cannot be completely ruled out based on the general principles of insurance law. The Court of Appeal in Mons ruled that the client, who was also the affected party, could in fact submit a claim against his architect’s insurer, even though the architect in question had not notified his insurer of the building project concerned.
The aggrieved party will therefore still be able to receive compensation for the loss or damage suffered. The fact that the insurer has a right of recovery against its insured party is of no significance as far as the aggrieved party is concerned.
6. THE FINANCIAL LIMITS OF COVER
The Act specifies amounts of cover per loss event. The index-linked minimum amounts of cover are:
- EUR 2,354,896.82 for damage arising from physical injuries
- EUR 814,814.81 for all material and non-material damage
- EUR 162,196.30 for goods entrusted by the client.
An annual limit of 5,000,000 EUR applies in relation to all loss events as a whole. The striking thing is that the legislators seem to have forgotten to ensure that this amount is also index-linked.
7. VERIFICATION AND FORM
As in the case of the compulsory insurance for the ten-year liability period, the insured party must provide proof that he/she has fulfilled the obligation to take out insurance.
All contractual documents must state the insurer’s name and company number and the policy number concerned.
For architects, additional obligations apply.
The insurance can be taken out in the form of an annual policy or block policy, in the form of a policy per project or in the form of an overarching policy covering all parties on site that are obliged to hold insurance.
8. EFFECT OVER TIME
Finally, we would like to draw attention to the effect over time of this insurance referred to in Article 6.
The legislators have imposed a compulsory way of working known in the sector as “claims made”, including a “sunset clause”.
“Claims made” means that the indemnity provided by the insurance applies to the claims for compensation initiated in writing against the insured parties or the insurance company during the term of the insurance contact and relating to damage or loss that occurred during that same term.
The “sunset clause” means that claims initiated in writing within a period of thirty-six months with effect from the end of the insurance contract will also be taken into account. Such claims must relate to:
- damage or loss that has occurred during the term of the contract and is not covered by any other insurance company;
- deeds or acts that may give rise to damage that occurred during the term of this agreement and have been notified to the insurance company.
That period is explained by the fact that the obligation to take out insurance cover applies for a period of three years after the architect or expert land surveyor has terminated his/her registration on the roll of architects or expert land surveyors or from the day on which the service provider in the construction industry terminates his/her activities.
In our next article, we will take a look at what insurance can be taken out by parties such as a building contractor to whom the obligation under this Act does not apply.
