Decennial Liability Insurance in Construction Projects Overview

Decennial liability insurance is a type of insurance that protects construction project owners from potential losses due to defects in the work or materials used.

This insurance is typically required for large-scale construction projects, especially those involving government contracts.

A decennial liability policy can cover losses that occur during the 10-year warranty period.

The policyholder is usually responsible for paying a premium to maintain coverage throughout the project's duration.

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In Oman, the decennial liability is regulated by two articles, Article 634 of the Civil Transactions Law No. 29 of 2013 and Article 22 of the Law on the Regulation of Engineering Consulting Firms No. 27 of 2016.

The liability period is 10 years, commencing from the time of delivery of the work. This means that the engineer and contractor are jointly liable for any defects or collapses that occur within this timeframe.

The warranty period includes any defects existing in the buildings and facilities that endanger the safety and endurance of the building. The contracting parties can specify a longer period, but if not, the default period is 10 years.

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The licensed designer or supervisor of implementation is liable, jointly with the contractor, for any mistakes or defects in the projects designed by them or implemented under their supervision. This liability extends to defects due to the land on which the project is built or if the employer authorized the establishment of defective enterprises.

If the work of the office was limited to design without being assigned to supervise implementation, they are not liable for defects resulting from the design. Any agreement or condition intended to exempt or reduce the guarantee is considered void.

Here is a summary of the key points:

The liability lawsuit must be forfeited after 3 years from the date of detection of the error, defect, or violation, without taking actions of filing the said lawsuit.

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The parties responsible for decennial liability are typically the contractor and the engineers, who are liable according to their contribution to the works. This means that if a defect is found, the court may decide which one of them is liable, or they may share the liability equally if it's impossible to determine their individual contributions.

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The contractor is responsible for the defects in the works, and they may be held liable for a period of ten years. This is a significant responsibility, and it's essential for contractors to ensure that they complete their work to a high standard.

Engineers who participate in designing or consulting without a certificate or license from the authority may still be liable for defects in the works. Al Sanhoury believes that in such cases, the engineer can be held liable for ten years.

In jointly owned properties, the developers are liable to remedy defects in structural elements for a period of ten years from the date of completion. This means that buyers may sue the developers in respect of defects based on the decennial liability provisions.

Decennial liability insurance covers the repair or reconstruction costs of insured works that jeopardize their stability or solidity. This type of insurance is typically valid for a fixed period of 10 years.

The insurance can also cover costs, damages, losses, or claims resulting from damage or loss covered under the standard decennial liability insuring clause. These include repair costs to non-structural parts of the insured works, liability claims made against the architect, contractor, or engineer, and consequential financial losses incurred by neighbors or the principal/owner of the insured works.

The coverage includes repair costs to non-structural parts such as furnishing works and technical installations. Liability claims made against the architect, contractor, or engineer are also covered, including claims for physical damage to surrounding buildings.

Consequential financial losses incurred by neighbors or the principal/owner of the insured works are also covered. These can include business interruption losses.

The following are excluded from decennial liability insurance: natural catastrophes, normal wear and tear, nuclear risks, purely aesthetic damage, and intentional acts.

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The Conditions for Insurance Realization are quite specific, but they're essential to understand if you're involved in construction projects.

Articles 634 and 637 of the Civil Transactions Law contain the substantive and formal conditions for the application of decennial liability insurance.

To be eligible for decennial liability insurance, the contractor and engineer must be jointly liable for a period of ten years. This period starts from the time of delivery of the work.

The warranty set forth in these articles includes any defects existing in the buildings and facilities that endanger the safety and endurance of the building.

If the contracting parties intend for the installations to remain in place for less than ten years, they must specify this in the contract.

The licensed designer or supervisor of implementation shall be liable, jointly with the contractor, for any mistakes or defects in the projects designed by them or implemented under their supervision, for a period of ten years.

This liability extends even if the defect is due to the land on which the project is built or if the employer authorized the establishment of defective enterprises.

The decennial liability insurance is required for the construction of fixed structures, not for repair and decoration works or structures that can be easily moved.

To qualify for decennial liability, the object of the contract must be the construction of fixed structures, such as buildings. This means that defects in movable parts like doors or paint don't fall under decennial liability.

The decennial insurance covers defects that threaten the durability of the building or make it unfit for its intended purpose. However, if a structure meets its intended purpose despite deviating from the design, it's not subject to decennial liability.

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The new Saudi law has introduced significant changes to the contracting and projects landscape.

The law now requires contractors to obtain a license from the Saudi Authority for Accreditation and Quality Assurance to operate in the country.

This new regulation aims to enhance the quality and efficiency of projects in Saudi Arabia.

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Contractors without a valid license will not be allowed to bid on government projects.

The Saudi Authority for Accreditation and Quality Assurance will be responsible for issuing and renewing licenses.

The law has also introduced stricter penalties for contractors who fail to meet project deadlines or deliver substandard work.

These penalties include fines and even the revocation of licenses.

Contractors must now provide a performance bond to secure their projects.

The performance bond will ensure that contractors can complete projects on time and to the required standard.

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Construction projects require careful planning and attention to detail. The type of structure being built is crucial, as Article 634/1 specifically requires decennial liability insurance for the construction of fixed structures.

This means that if you're building a permanent structure, you'll need to obtain decennial liability insurance, but if you're doing repair and decoration works or constructing structures that can be easily moved, you won't need it.

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The decennial liability insurance covers defects that threaten the durability of the building or make it unfit for its intended purpose, but not non-conformance of the work with the specifications.

For example, if a defect in the paint or tiles doesn't compromise the building's integrity, a short insurance period may apply. However, if the structure is distinct from the design but still meets its intended purpose, it won't be subject to decennial liability insurance.

Employers can still claim compensation from contractors and engineers based on contractual liability, but only if the conditions are met.