In short. A public liability policy excludes by definition damage to third-party property held by the insured and to the property on which it carries out its work. Two distinct sections are born of that double exclusion: property in care, custody or control, for third-party property in your hands, and property being worked upon, for property you attend at its own location. Neither covers what its name suggests: the part actually worked on, and the insured's own work, remain excluded even once the section is bought, absent express agreement and subject to the specific terms of each policy. Neither, moreover, is a legal category: they are policy-wording labels with no statutory definition.
The average cost of an industrial fire in Spain is €39,852, according to UNESPA figures on claims affecting insured buildings for 2024. That is a mean, and like every mean it hides the tail: in a workshop with clients' machinery inside, the exposure stops being that of the building itself and becomes that of the third-party assets held there.
That is where the question that decides the file appears. If the machine that burned belonged to a client and was on your premises for repair, does the liability policy respond? The answer does not turn on the fire. It turns on two words in the policy wording.
The exclusion from which both sections are born
Article 73, first paragraph, of the Spanish Insurance Contract Act (Law 50/1980) defines liability insurance as cover against the risk that there arises, for the insured, an obligation to indemnify a third party for damage for which the insured is civilly liable.
The key word is third party. Public liability is built on the non-contractual liability of article 1902 of the Spanish Civil Code: the damage your activity causes to somebody who happened to be there. It is not built on the contract you signed with your client, nor on the outcome of your work.
Hence almost every wording in the market excludes two things a non-specialist would expect to find inside:
- Third-party property held by the insured — under bailment, custody, use, lease, carriage or handling — because it is not the property of an outside third party but property under the insured's control.
- Property on which the work is carried out, because damage to it flows from defective performance of the contract, not from an event extraneous to it.
The distinction is not an insurer's whim. The Spanish Supreme Court, in First Chamber judgment 730/2018 of 20 December, reasoned that public liability insurance covers the non-contractual liability arising from the operation of the business and does not guarantee the correct performance of the service that is the object of the contract, nor damage to the item being worked on. Anyone who wants that cover has to buy it separately.
And it is bought separately in two pieces, not one. Confusing them is the source of most declined claims.
Property in care, custody or control: I hold it, but it is not mine
The care, custody or control section covers the insured's liability for physical damage to third-party property held by the insured by reason of its activity.
The operative test is possession. The property has left its owner's sphere of control and entered yours: it is in your building, your workshop, your warehouse, your vehicle, your hands. The legal title is immaterial — bailment, loan for use, lease, repair order — what matters is that you have it.
Typical situations: the workshop holding clients' equipment awaiting repair; the logistics operator with third-party goods on its racking; the maintenance company that takes a component back to its own test bench; the installer using machinery lent by the client.
Here the basis is not article 1902 alone. Where there is a contract of bailment or lease, the law reverses the burden of proof: article 1183 of the Civil Code presumes that loss of a thing in the debtor's possession occurred through the debtor's fault, and article 1563 makes the tenant liable for deterioration unless it proves the deterioration arose without its fault. It is a rebuttable presumption (iuris tantum), not strict liability, but it obliges the company to prove it took due care. The same logic governs tenant's legal liability.
Do you know the sub-limit on your care, custody or control section, and whether it covers the property sitting in your warehouse today? Request a review of your wording.
Property being worked upon: I work on it
The property being worked upon section covers damage caused to third-party property on which the insured physically carries out its work, and which normally remains where it is: an electrical installation, a roof, a production line, a machine bolted down at the client's plant.
The difference from the previous section is not a nuance. With property in care, custody or control, the item is in your hands; with property being worked upon, you travel to the item. The same incident falls under one section or the other depending on what the insured was doing with the item at the time of the damage, and policies usually carry different sub-limits for each. The distinction matters particularly for the self-employed assembly and installation contractor, who almost always works on third-party property at the client's site.
And here comes the nuance that decides claims and is rarely explained: buying property being worked upon does not cover the whole item. Market wordings keep excluded, within the section itself, the part actually worked on, together with the work or supply carried out by the insured or its subcontractors. It is an exclusion inside the exception to the exclusion.
Translated into a case: if welding a pipe damages the adjoining installation, the section may respond for that installation; the cost of redoing the defective weld, it will not. The policy insures the damage your work causes around it, not the quality of your work. All of this on the terms and within the sub-limits set by the specific conditions of each policy.
| Section | Which property | Where it is | Example of a claim | What stays outside even once bought |
|---|---|---|---|---|
| Property in care, custody or control | Third-party property in the insured's custody, use or handling | In the insured's hands: building, workshop, warehouse, vehicle | Fire in the workshop destroying clients' equipment awaiting repair (subject to wording) | Theft, larceny and unexplained disappearance; third-party vehicles; the insured's own property; the defect in the repair itself |
| Property being worked upon | Third-party property on which the work is carried out | At its own location: the client's plant, site or building | Damage to the adjoining installation during a maintenance intervention (subject to wording) | The part actually worked on; the insured's own work and that of its subcontractors; the cost of redoing the service |
The label varies between wordings — "third-party property in custody", "property in the insured's possession", "work carried out" — and with the label the scope varies too. Read the definition, not the heading of the section.
Are these exclusions unfair? What the case law says
It is the first reaction of any finance director on reading the declinature, and it deserves a technical answer rather than an indignant one.
First Chamber judgment 853/2006 of 11 September set the doctrine that orders the whole debate. A risk-defining clause specifies which risk is covered, in what amount, for what period and within what scope: it describes the object of the insurance. A limiting clause restricts or conditions a right of the insured that has already arisen once the risk has materialised. Only the latter are subject to article 3 of Law 50/1980, which requires them to be given special prominence and to be specifically accepted in writing.
Applied to these exclusions, the result is counter-intuitive. Where the clause merely describes which property falls within the insured risk — third-party property, but not what you hold in custody nor what you work on — it fits the definition of a delimitation of the object insured. And in that case neither the prominence nor the signature required by article 3 apply to it. That is precisely the opposite of what popular commentary on "small print" suggests.
That said, the characterisation is not decided in the abstract: it depends on the specific wording. A clause that describes the risk and a clause that, having granted cover, then cuts it back through added conditions do not receive the same treatment. Which is why the useful response is not to argue unfairness after the claim, but to review the wording before signing. We develop this in common exclusions in a liability policy.
One point of particular interest to large accounts: article 44, second paragraph, of Law 50/1980 disapplies the mandatory character of the Act to contracts covering large risks. A company above the thresholds of article 11 of Law 20/2015 will not be rescued by the law from a badly negotiated wording. Only prior negotiation does that.
Theft, vehicles and valuation: the surprises in the wording
Three details that surface late and cost dearly.
Theft is usually outside. Larceny, theft and unexplained disappearance are among the most frequent exclusions in the care, custody or control section. The section responds to accidental physical damage arising from the activity, not to misappropriation. A company that routinely holds clients' property needs to cover that exposure by another route.
Third-party vehicles too. Motor vehicles belonging to clients are expressly excluded, or carry a separate section, in most wordings, precisely because they have a class of their own. It is a critical point for workshops, dealerships, car parks and fleet operators.
Valuation decides who absorbs the difference. Indemnifying on a new-for-old reinstatement basis is not the same as indemnifying on an actual cash value basis with depreciation. On older assets the gap between the two bases can exceed the deductible itself, and the insured bears it as against its client. All of this in accordance with the terms of each policy.
To this must be added the most expensive programme error in this family: duplicating cover, or leaving a gap, between the property damage policy and the liability policy. The damaged property in your custody may be picked up by the property policy, as a third-party property item, or by the liability policy, as liability to its owner. If both pick it up, you are paying twice for the same cover; if neither picks it up clearly, the claim falls into the gap. That is an architecture decision, not a pricing one.
Two policies, one property and one liability, should fit together without overlapping. We review your entire programme.
The real trigger: subrogation
The claim hardly ever comes from the owner of the property. It comes from the owner's insurer, and it comes late.
The owner of the damaged machine is paid under its own property policy. From then on article 43 of Law 50/1980 operates: an insurer that has paid the indemnity may exercise subrogation into the rights and actions available to its insured against the party responsible for the damage. That is, against the bailee company or against whoever was carrying out the work.
That same article introduces a nuance of considerable practical weight: subrogation does not lie against persons for whose acts the insured must answer, save — among other cases — where the liability is covered by a contract of insurance, in which event subrogation is limited in scope to the terms of that contract.
The operational consequence is twofold: the claim appears months later, already surveyed and quantified, in the form of a recorded-delivery legal demand (burofax) with a fixed figure; and the party making it is an insurer with a recoveries department, not a client with whom a commercial conversation is possible. That is when it emerges whether the section had been bought, with what sub-limit and on what wording.
The role of an independent broker
Two policies with the same main limit and a similar premium can leave radically different exposures depending on how they define property in care, custody or control, whether they exclude theft, where they draw the boundary of the part worked on and what sub-limit they assign to each section. None of those variables appears on a price comparison sheet.
As an independent brokerage registered with the Spanish DGSFP under reference J0140, we act on the client's mandate and not on the insurer's behalf. We analyse which third-party property actually passes through your premises and which property you work on, we negotiate the wording as well as the price, and when a claim arises we defend the company's position against the insurer bringing it. You can see the full scope on our page on liability insurance.
Frequently asked questions
What is property in care, custody or control in a liability policy? Third-party property held by the insured under bailment, custody, use, carriage or handling. Public liability excludes it by definition: it responds only if the specific section is bought, with its own sub-limit.
What is property being worked upon? Third-party property on which the work is carried out and which usually remains where it is: installations, buildings or machinery at the client's plant. The section covers the damage caused around it, not the quality of the work itself.
Does liability cover damage to the machine I was repairing? It depends which part was damaged and which sections were bought. With no specific section, public liability does not respond. With it, collateral damage to the rest of the item may be covered, but the component actually worked on normally remains excluded, subject to the wording.
Does the care, custody or control section cover theft of the property held? Usually not. Theft, larceny and unexplained disappearance are normally excluded: the section responds to accidental physical damage, not to misappropriation. That exposure is covered by another route.
Can the insurer decline a claim under this clause if I never signed it? It can, if the clause is characterised as risk-defining, because article 3 of Law 50/1980 requires prominence and signature only for limiting clauses. The characterisation depends on the specific wording.
Sources and legislation
- Law 50/1980 of 8 October, the Spanish Insurance Contract Act: article 3 (limiting clauses), article 43 (insurer's subrogation), article 44, second paragraph (large risks) and article 73, first paragraph (liability insurance).
- Law 20/2015 on the organisation, supervision and solvency of insurance and reinsurance undertakings, article 11 (definition of large risks).
- Spanish Civil Code, articles 1183 (presumption of fault in the loss of a thing held by the debtor), 1563 and 1902.
- Spanish Supreme Court, First Chamber, judgment 853/2006 of 11 September (distinction between risk-defining and limiting clauses).
- Spanish Supreme Court, First Chamber, judgment 730/2018 of 20 December (scope of public liability insurance).
- UNESPA, claims affecting insured buildings, 2024 data.
This information is for guidance only and does not constitute binding advice. Covers, limits and exclusions are governed in every case by the specific terms of each policy. New Brokers Correduría de Seguros, S.L., registered with the DGSFP under reference J0140.
