Construction insurance: when the contractor is not covered for defects before acceptance

A brand new building in central Paris, delivered with cracks, seepage, and material defects. The co-ownership syndicate turns to the builder to obtain repair. Logical. But when the latter calls upon its insurer for help, the response is brutal: no cover. The fault lies with a small-print clause in the contract. The story seems banal, and yet, it dates back to 1973 and remains highly topical. What happened? Did the Court of Cassation validate this denial of cover? And for you, owner, tenant or managing agent, what lessons can be drawn?

Behind this case, the mechanism of construction insurance reveals itself, often little known until the day a claim occurs. Who is covered, for what damage, and at what point? All these questions arise suddenly when it is discovered that the work carried out does not keep its promises. The answer of the supreme court is final: the insurer owes only what the contract provides, nothing more.

The judgment of 7 November 1973, although old, lays down a clear principle: the judge cannot distort the will of the parties. If the insurance policy limits cover to works accepted without reservations, the builder cannot hope to be indemnified for damage occurring before this formal acceptance. A contractual logic which, fifty years later, continues to govern relations between project owners, builders and insurers. Analysis.

The facts: a story that happens every day

It all begins in the capital. A developer builds a property complex called "Le Milan", subject to the co-ownership regime (law of 10 July 1965). The company responsible for the structural works, a general building cooperative, is entrusted with the construction. Soon, defects appear: poor workmanship affects the building, serious enough that the co-ownership syndicate, represented by its managing agent, initiates legal proceedings.

The court orders the builder to carry out the necessary remedial works. The latter, anxious not to bear the financial weight of this order alone, turns against its insurer. It considers that the policy taken out must cover the pecuniary consequences of the defects. However, the insurer refuses its guarantee. The dispute then rebounds before the Court of Appeal, which decides in favour of the insurer. The builder, convinced of an error of law, files an appeal in cassation.

What does it criticise the judgment for? First, an internal contradiction: the Court of Appeal is said to have recognised that the works had been carried out while attributing to the company "normal" shrinkage for such works. Next, it argues that the defects are not attributable to it, but arise from phenomena inherent in the material. But the heart of the debate lies elsewhere: the interpretation of the insurance contract. The judges must determine whether the policy covers this type of claim, and above all at what point the cover takes effect.

The answer is found in the policy clauses. The insurer only guarantees, before acceptance, material damage resulting from total or partial collapse of the building. And for defects falling within the scope of decennial liability (which burdens the builder for ten years after acceptance, Article 1792 of the Civil Code), it is still necessary that acceptance has been pronounced without any reservation. However, in this case, the Court of Appeal expressly notes the existence of reservations at the time of provisional acceptance. Therefore, the contract is not intended to apply.

The reasoning of the court — dissected

The Court of Cassation dismisses the appeal. Its reasoning, sober, concentrates on the essential: the Court of Appeal merely applied the clear terms of the policy. It notes that the insurer covers the pecuniary consequences of decennial liability only for works that have been accepted without reservation. This finding suffices to reject the claim for cover. No distortion of the contract, no contradiction: the trial judge simply gave effect to the stipulations adopted by the parties.

To fully grasp the scope of the judgment, it is necessary to recall what acceptance is in construction law. It is the act by which the project owner accepts the building, with or without reservations (Article 1792-6 of the Civil Code). Without acceptance, the builder is bound by an obligation as to result but the decennial liability is not yet triggered. If reservations are made, this means that the building is not considered compliant or free from defects. In this case, the insurance cover provided for the post-acceptance period may legitimately be excluded, as the court does here.

The Commercial Chamber (then competent for this type of dispute) follows a consistent line of authority: liability insurance is a contract under private law, freely negotiated. The insurer is only bound by what is expressly provided. Neither more, nor less. The judge cannot automatically grant cover that the policy excludes. In this instance, the builder was invoking a defect occurring before acceptance, and which was not a collapse. It therefore fell outside the contractual scope. Would the solution have been different with a broader policy? Certainly. But that was not the question.

Why does the supreme court dismiss the builder's argument on the contradiction of reasons? Because the mere fact of having carried out the works does not mean that they are free from defects. The Court of Appeal could both find execution and note defects, without contradicting itself. As for the phenomenon of "normal" shrinkage, this was a technical assessment which the trial judge did not accept as exonerating.

What this means for you — in concrete terms

Owner of a flat in a recent co-ownership in Paris, you discover cracks in the entrance hall. The managing agent acts against the builder. The latter, found liable, tries to involve its insurer. If its contract contains a clause similar to that examined in 1973, the insurer may refuse any cover. Result: the builder will have to pay out of its own pocket. But if it is insolvent? It is the co-ownership that risks bearing the final cost, via exceptional calls for funds.

For a developer or a tradesman, the lesson is brutal: check the exclusions of your policy before the first shovel hits the ground. An "all risks on site" policy (TRC) can compensate for the lack of cover before acceptance, but it is expensive. Without it, a claim occurring during the works, even a minor one, can ruin you. Imagine a mason in Saint-Denis whose retaining wall cracks before acceptance: no collapse, no insurance. The cost of repair? 15,000 euros, entirely at his charge. The bill can be steep.

If you are a tenant, the effect is indirect but real. A landlord who must finance uninsured repairs may seek to pass on this cost, sometimes disguised as a rent increase upon renewal of the lease. Or worse, it may defer the works, degrading your living environment. The right to decent housing (Article 6 of the law of 6 July 1989) protects you, but procedural delays are long. It is therefore better, before signing a lease, to ask the landlord about the history of works and any ongoing disputes.

What should you retain from this judgment for your own situation? First, that the date of acceptance is a fundamental divide. Before it, only collapses are covered (in the classic policy). After it, and provided that no reservation has been made, the decennial liability applies for serious defects. Next, that the clauses of an insurance contract have the force of law between the parties. The judge is not there to rewrite what was agreed. If you are in this situation, you must immediately analyse the relevant policy, note the date and possible reservations of acceptance, and do not hesitate to seek legal advice. A simple discussion with a solicitor can save you long months of hazardous litigation.

Take the quantified example of a Parisian co-ownership of twenty lots. A non-compliance affects the ventilation system (apparent defect with reservation). The builder refuses to remedy it, the insurer denies cover. The syndicate has the works carried out by another company: 40,000 euros. If the defaulting builder is insolvent, each co-owner will have to contribute in proportion to their share. An owner of a two-room flat of 50 m² could thus be asked for 2,500 euros. The misadventure illustrates why it is always necessary to require the lifting of reservations before releasing the 5% retention (Article 1799-1 of the Civil Code).

Four tips to avoid this type of dispute

• Scrutinise your insurance policy with a fine-tooth comb. Do not rely on the summary leaflet. Read the special and general conditions, in particular the chapter "scope of cover" and "exclusions". Identify the mentions concerning acceptance, reservations, and the types of damage covered. If a term escapes you, have it clarified by the insurer or an adviser.
• Draft a surgical acceptance report. Acceptance is the key act. For the project owner, never sign an "without reservation" if the slightest defect persists. List each reservation, even minor, precisely and with photographs. For the builder, conversely, ensure that you obtain a final list of reservations and their written lifting, which will often trigger decennial insurance.
• Schedule of covers: leave no gap. Between the end of the site and acceptance, a sensitive period exists. Take out an all risks on site policy (TRC) or a "property damage" policy before the start of the site. This is an additional cost (often 2 to 3% of the cost of works), but it protects you against a denial of cover like that in the 1973 judgment.
• Archive everything, and quickly. Keep the insurance policies, the acceptance reports, the correspondence, the dated photos of the defects. In the event of a dispute, evidence of the date of appearance of a damage and of its notification can tip the outcome of the litigation. Late notification of a claim may, moreover, lead to loss of cover.

Further reading: related case law and developments

The judgment of 7 November 1973 is not an anomaly. It fits into a strict line of authority on the interpretation of insurance contracts. A few years earlier, the Court of Cassation (Cass. civ. 1st, 27 October 1970) had already recalled that formal and limited exclusion clauses are enforceable against the insured. More recently, the Third Civil Chamber (Cass. civ. 3rd, 10 March 2004, no. 02-19.009) held that the absence of acceptance excludes the operation of compulsory decennial liability insurance, simply noting that the contract did not provide for it.

This contractual rigour has, however, been tempered by the legislator. Since the Spinetta law of 4 January 1978, property damage insurance is compulsory for every project owner, and decennial liability insurance for every builder. These public policy insurances can only be limited in cases provided for by law. But before this reform, contracts were free. The commented judgment therefore illustrates a law prior to 1978, but its logic remains for optional policies (TRC, professional liability before acceptance). The courts continue to refer to it.

The current trend in the courts is to protect the lay project owner against unfair terms, but to be firm when the insured is a knowledgeable professional. The 1973 judgment anticipates this distinction: in the presence of a clear clause, the builder cannot invoke any legitimate expectation. For the future, with the development of bespoke insurance contracts and increasingly sophisticated exclusion clauses, it is likely that disputes will shift to the concept of "tacit acceptance" or "unwritten reservations". One thing is certain: vigilance remains essential.

What to remember

In question-and-answer form, here are the key points to remember.

1. Can the insurer always refuse cover in the event of a defect? No, only when the claim does not correspond to the covers taken out. If the policy covers damage before acceptance or without condition of reservations, the insurer must pay. Each contract is a case by case.

2. What does "acceptance without reservation" mean? It is the act by which the project owner accepts the building as is, without contesting its conformity or the quality of the works. This acceptance may be express (signature) or tacit (taking possession without protest). The absence of reservation is often a condition for triggering decennial liability.

3. If I discover a defect after having signed without reservation, can I act? Yes, provided the defect is hidden, because decennial liability applies for serious defects compromising the solidity of the building or making it unsuitable for its purpose, even if they were undetectable at the time of acceptance. A reservation not made does not deprive you of this legal protection.

4. Is this judgment still valid today? Absolutely. Although it judges a contract prior to the 1978 law, the principle that the judge must strictly apply the clear and precise clauses of the insurance contract remains unchanged. It continues to be cited in doctrine and case law.

5. What to do if my insurer refuses my claim on the basis of an exclusion clause? Do not remain isolated. Have your contract analysed by a specialist solicitor. Sometimes, the clause is deemed unwritten if it is unfair or too vague. An expert appraisal referral can also make it possible to technically establish the origin and date of the claim, which are decisive elements for assessing cover.

In conclusion, the 1973 decision forcefully reminds us that construction insurance is a contractual mille-feuille where each layer conditions cover. A careless reading of a clause can turn a simple glitch into a financial abyss. So, before signing, read. And if in doubt, get support.