French News Archive

Building & Renovation

French Construction Insurance Contracts Terminated

Tuesday 06 October 2020

Over 60,000 policyholders in France lose insurance cover on construction contracts insured through an insurer based in Gibraltar.

As a result of the liquidation of Gibraltar based insurer Elite Insurance Ltd last year, the French insurance regulator, Autorité de contrôle prudentiel et de résolution (ACPR) has notified around 60,000 policy holders with the company that their policies have been terminated.

According to the authority, with effect from 15th Sept 2020 any policies held by policy holders in France will "not be subject to compensation as a result of the termination of contracts".

The policies in France offered insurance cover against building defects, for both home-owners and professionals.

The risks covered by these policies were mainly for the ten-year building guarantee, such as Dommages-ouvrage (DO) and Responsabilité Civile Décennale (RCD).

As occurs elsewhere in Europe, major building works in France are covered by a ten-year guarantee (responsabilité décennale). Builders can take out a policy to protect themselves against claims (RCD); their clients can, in turn, take out a policy (DO) which protects them against builders who contest claims, leaving it to the insurer to deal with the legal battle and, in the interim, meet the costs of dealing with the defect(s).

Elite also provided some cover under:

  • Responsabilité Civile Professionnelle (RCP);
  • Constructeur non réalisateur (CNR)
  • Tout Risque Chantier (TRC);
  • Constructeur De Maison Individuelle (CMI); and
  • Garantie Financière d'Achèvement (GFA).

These policies were offered by a number of insurance brokers in France, such as those with the acronyms SFS, EISL, ProFirst and UBI.

The company, established in 2004, is one of number of low-cost insurers that have grown up over the past 20 years which took advantage of the free movement of capital and services in Europe to set up base in Gibraltar where the regulatory structure is less stringent, and to offer insurance policies in other Member States of Europe.

However, low-cost European insurers have used the provisions of European legislation to circumvent French regulations and make fewer financial provisions than those required by law for French insurers.

The company had nearly a million customers across Europe, and offered insurance policies for a range of risks, mainly motor insurance in the UK, where it had 860,000 policyholders.

It has not offered construction guarantee policies in France since 2018 and has been under administration since 2019.

The Administrator, PriceWaterhouse Coopers, have stated that "claims which have occurred and for which compensation has been agreed but which have not been paid before 15 September 2020 remain eligible for compensation". However, the chances of any compensation being received are slim, due to the financial position of the company.

Policyholders will be unable to call upon the statutory guarantee fund (Fonds de Garantie des Assurances Obligatoires - FGAO), as this fund did not cover such policies until July 2018. Neither is the guarantee fund available to businesses.

The trade association for French insurers, the Fédération française de l'assurance (FFA), stated: "We have warned for many years about the insufficient financial solidity of some construction insurers operating in France. Safeguards need to be put in place to prevent such liquidations from happening again, and to encourage insurance intermediaries to choose their insurance partners carefully, by checking their financial soundness, their knowledge of the market and their ability to settle claims".

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