What is decennial building damage insurance?

Definition of decennial insurance

Decennial damage insurance for buildings is a material damage insurance policy that guarantees, for ten years, compensation for material damage caused to the building by flaws or defects originating in or affecting the foundations, columns, beams, floor slabs, load-bearing walls or other structural elements, and which directly compromise the mechanical resistance and stability of the building.

It is governed by Article 19 of Law 38/1999 of 5 November on Building Regulation (LOE), which came into force on 6 May 2000. The law was created to regulate the building process, define the guarantees and responsibilities of all the agents involved in it and ensure building quality for buyers.

Any type of building can be insured: homes, offices, shopping centres, hospitals, theatres, auditoriums or sports centres, among others. It is only mandatory when the main use of the building is residential; in all other cases it is voluntary.

It should not be confused with All-Risk Construction (TRC) insurance: TRC protects the works while they are being carried out, whereas decennial insurance covers structural damage during the ten years after completion. The two types of cover are complementary.

What does the basic cover include?

The basic cover, the one required by the LOE, includes:

• Compensation for, or repair of, material damage caused to the building by flaws or defects originating in or affecting the main structure and which directly compromise its mechanical resistance and stability.
• Material damage to the external works, provided it is the direct result of a loss covered by the guarantee above.
• Demolition and debris removal costs arising from a covered loss, within the limits set in the specific conditions of the policy.

The main structure means the foundations, columns, beams, floor slabs, load-bearing walls and other structural elements that contribute directly to the mechanical resistance and stability of the building. Finishes, building services and the building envelope fall outside the basic cover; some of them can be added as additional or optional cover, and it is also worth knowing what the insurance does not cover.

The sum insured for structural damage is the final value of the building (building and external works) at handover, and includes the contract execution cost, technical fees (design, site management team, geotechnical survey and Technical Control Body), licences and taxes. We explain it in detail in the guide to the sum insured.

How long does it last and when does cover start?

Cover lasts ten years from the handover of the works. Although the insurance is arranged beforehand, the guarantee takes effect when the insurer issues the entry-into-force endorsement, whose effective date is that of the handover certificate (acta de recepción).

If the development is handed over in phases, partial entry-into-force endorsements can be issued, provided that each completed phase has its own handover certificate and final completion certificate.

The guarantee is attached to the building: if the home is sold, the new owner is protected for the remainder of the ten-year period. The full process, from application to entry into force, is explained in how decennial insurance is arranged.

Who takes it out and who is insured?

Under the LOE, the insurance must be taken out by the developer, who is the policyholder and pays the premium. The contractor can also be named as policyholder on behalf of the developer.

The insured parties and beneficiaries are:

• The developer itself, until it has delivered the home or the building.
• Successive purchasers of the building or of any part of it.

At Seguróx we manage the policy for developers, contractors and private individuals building their own homes.

Is decennial insurance mandatory?

The LOE requires it for buildings whose main use is residential, both for new builds and for extension, alteration or renovation works that change the architectural configuration of the building. It is a requirement for executing the deed of the new building and registering it in the Land Registry.

The main exception is the individual self-promoter of a single-family home for their own use, although if they sell it before ten years have passed they must take it out for the remaining period, unless the buyer expressly releases them from this obligation.

Specific cases (care homes, hotels, rental homes, changes of use…) are covered in which buildings require decennial insurance, and the situation of private individuals in the guide to decennial insurance for self-promoters.

Decennial insurance with and without an OCT

The Technical Control Body (OCT) is an independent organisation, appointed by the developer and accepted by the insurer, that reviews the design and inspects the execution of the works. Its reports allow the insurer to understand the risk it is taking on, and for the developer it is a preventive measure that leads to higher construction quality.

The insurer usually requires the OCT to be involved from the design stage or from the start of the works. That is why it is advisable to consider the insurance before work begins.

When there has been no technical inspection from the outset, people sometimes speak of decennial insurance “without an OCT”, although in practice the insurer will usually still ask an OCT to review the work already carried out. This applies to:

• Works already started or completed.
• Renovation works.
• Works involving existing elements.
• Works where the OCT has ceased to exist or there has never been one.

In these cases the insurer still needs to check the work carried out, so it may ask for documentation, inspections or additional tests. Acceptance depends on each insurer and, in general, the insurance is harder and more expensive to obtain than when technical inspection starts with the works.

Advantages of decennial insurance

For the developer and the contractor, the insurance provides a guarantee of repair or compensation at a cost known in advance:

• Compensation or repair is quick and does not depend on establishing which agent is liable or whether they are solvent.
• A single premium is paid, which does not vary with the cost of any loss that may occur.
• It protects their assets against buyers’ claims for structural damage.

For the buyer, the insurance is a guarantee of security: during the first ten years of the building’s life, someone is answerable for structural damage, with no need to go to court against the agents involved in the works. We expand on this point in the advantages for buyers and owners.