Declaration of activity to the insurer: what are the boundaries for the coverage of activity?

September 27th 2018

A building contractor must subscribe for a decennial liability insurance policy against any defects affecting the building constructed[1].

The non-respect of this obligation is subject to a six-month prison sentence and/or a fine of 75,000 euros.

It is also possible and strongly recommended for the building contractor to subscribe for civil liability construction insurance, before or after the acceptance of the works.

However, for professional civil liability insurance, the risk is based on the activity declared by the professional, thereby limiting the scope of the insurance policy.

Accordingly, only the activities, and more specifically the activity sector(s) declared by the professional, shall be covered by the insurance policy.

The French Civil Supreme Court regularly recalls in this regard that the insurer’s liability only concerns the activity sector declared by the building contractor.

Accordingly, the insurer shall only be liable for the damages resulting from the activity declared by the policy holder.

It is more difficult to find out whether the related activities need to be declared or whether they are considered as a derivative of the principal activity.

This is an important issue to be defined as the response shall determine the insurer’s coverage.

Nonetheless, if the company which has carried out the works is insolvent or has been liquidated, the victim’s only opportunity to obtain compensation shall be from the insurer.

If the insurer does not provide coverage, the project manager shall not have any remedy and must assume the cost of the repairs for any defects.

In the event of a dispute, the judge shall be responsible for assessing the limitation of warranty asserted by the insurer for the declared sector of activity.

The French Civil Supreme Court ruled on this issue in a decision dated February 28, 2018[2].

A company had assigned repair works of commercial premises to a firm, which, in turn, had sub-contracted the floor covering works.

Damage subsequently emerged on the tiling.

After an expert appraisal, the project manager summoned the sub-contracted company, its sub-contractor, the latter’s liquidators and their respective insurers to obtain compensation for his prejudice resulting from the defects identified on the tiling.

In this case, the sub-contracted contractor, contracting directly with the project manager, had taken out a civil liability insurance policy for any physical injury, material and consequential damage caused to third parties during his professional activity: “general masonry work”.

The Court of Appeal dismissed the claims filed against the sub-contracted company’s insurer on the ground that the latter “had declared the general masonry works as a professional activity, but that tile laying is a separate activity to that of masonry, as masonry work does not necessarily involve tile laying”.

The French Civil Supreme Court overturned this decision on the basis of Article 1134 of the French Civil Code, in its initial drafting, and confirmed that “the general masonry work included tile laying”.

Accordingly, if the insurer covers masonry work he cannot refuse the coverage for related activities including tile laying, which is a derivative of the declared activity.

In other words, according to the French Civil Supreme Court, the contractor is not obliged to declare the related activities to the general activity that he has declared to his insurer.

Nonetheless, this case law should be nuanced.

It is necessary to define the boundaries for the association between the activities carried out and the activity declared.

When is an activity a derivative and when is it a separate activity?

Such limits are currently lacking goal posts, which is a significant issue for the coverage of future damage by the insurers and opens a Pandora’s box for interpretation.

Furthermore, there is always a possibility of a departure from precedent …

Accordingly, for the record, in a decision dated November 8, 2006[3], the French Civil Supreme Court had overturned the FORT-DE-FRANCE Court of Appeal’s decision which had decided, whereas the activity was declared as masonry work “it is customary practice that when the project manager assigns the construction of a detached house to a mason, as in this case, the latter shall also be responsible for the roofing work, and that accordingly upon constructing a defective roof, this was part of M.Z.’s declared masonry activity.

The French Civil Supreme Court dismissed this argumentation and upheld “that masonry and roofing were mutually separate activities”.

Accordingly, for the avoidance of doubt, it is advisable for the professional to continue to declare an exhaustive list of his activities and to avoid umbrella clauses.

In the event of a dispute following the refusal of coverage by the insurer, it is advisable for the victim to assert that the activity is related to ensure coverage in accordance with the decision of
February 28, 2018.

Cindy Richard