In short. A construction project is protected by three layers that many programmes confuse: contractors' all risks in its material damage section, covering what happens to the works; the liability section, or third-party liability on site, covering what the works do to other people; and the decennial liability, which operates after the reception of the works. That reception is the hinge between the first two layers and the third. The costliest mistake is not buying too little: it is assuming that contractors' all risks is a liability policy. It is not.
Construction accounts for 21.5% of the premiums in the Spanish liability class with only 10.7% of the policies, according to ICEA figures reported in the trade press (2026). From those two percentages an average premium can be inferred at around twice the class average; that estimate is ours, not a figure published by ICEA. The average claim cost in construction points the same way: €75,117, against €5,675 for the average industrial claim (UNESPA, industrial claims, August 2024 – July 2025).
Construction costs more because it accumulates, all at once, risks that no other activity brings together. And because in very few programmes is it clear which policy responds to which.
Three layers, three moments, three policies
A project under construction generates three distinct exposures, and each has its own instrument:
- What happens to the works. The collapse of a half-built floor slab, fire in the structure, theft of stored materials, the storm that floods the basement. This is section I of the contractors' all risks policy (CAR, or TRC in the Spanish market). It is a damage policy.
- What the works do to third parties during execution. The crane that damages the neighbouring building, the pedestrian injured by a falling object, the burst water main under the pavement. This is section II of the CAR, known in Spain as RC de obra: third-party liability on site. It is a liability policy.
- What emerges after handover. The structural defect that shows itself in the building's third year. That is the territory of the decennial liability under Law 38/1999, which we have already covered at length and whose regime we do not repeat here.
The hinge between the first two layers and the third is the reception of the works. Before that moment the CAR governs; afterwards, the LOE regime. Between the two there is a transition zone —the maintenance period— that almost nobody negotiates and where the gaps open.
To those three layers must be added a fourth that cuts across them: the contractor's general liability policy, which covers not a project but an activity. Its coexistence with section II is discussed below, because that is where the duplication occurs.
Contractors' all risks is not a liability policy
This is the sector's core error, and it explains a good share of misdirected claims.
At its core, the CAR covers what happens to the works, not what the works do to third parties. Section I indemnifies the insured itself for material damage suffered by the works in progress, the stored materials and, if agreed, plant and equipment. It works like any damage policy: there is insured property, a sum insured and an indemnity to the holder of the insurable interest.
A liability policy works the other way round. Article 73 of Law 50/1980, the Spanish Insurance Contract Act, defines it as the contract by which the insurer undertakes to cover the risk of the insured incurring an obligation to indemnify a third party for loss and damage caused by an event foreseen in the contract. There is an injured party outside the contract, an established civil liability and, under article 76, a direct action by the injured party against the insurer. None of that happens in section I of a CAR.
One point is worth adding because it is rarely said out loud: no Spanish legislation governs contractors' all risks. Its division into sections, the label given to each and the very perimeter of cover are market structure, inherited from the international Contractors' All Risks wordings, not a statutory regime. That is why, when this article describes what each section covers, the phrase "subject to the terms of each policy" is not stylistic caution: it is literally the only thing that defines the contract.
Could you say today which section of your CAR would respond to damage to the adjoining building? Let us review the wording together.
Section II is not the contractor's general liability policy
Here lies the second misunderstanding, and the one that produces duplicate invoices.
Section II of the CAR is confined to the project: it covers liability arising from the works described in the particular conditions, at their site and during their construction period. Outside those works, it does not exist.
The contractor's general liability policy covers the company's activity: all its sites, its operations, its fixed premises, its workforce and, depending on the sections bought, its completed works. Its scope is the business, not the project.
So one and the same loss —a third party injured at the site hoarding— can fall under both. They coexist and, in practice, they overlap. The usual result is familiar: two claim notifications, two loss adjusters, two views and, above all, two deductibles that the company ends up bearing while the insurers argue about who contributes and in what proportion.
That overlap is resolved before the claim, not during it. Three specific decisions:
- Set an order of priority in writing. Section II of the CAR should respond as primary cover for damage connected with the insured works, with the general policy operating in excess, covering the difference in limits and, if negotiated, the difference in conditions.
- Avoid the double deductible. Agree that only the deductible of the policy responding first applies, or that the excess policy does not impose its own deductible once the first has operated. This is a wording negotiation, and it depends on how the limits, sub-limits and deductibles of each contract are drafted.
- Align the definitions. "Third party", the geographical scope and the temporal delimitation of cover must mean the same thing in both policies. Where they do not, the gap appears exactly at the edge.
The full map: four layers in one table
| Layer | What it covers | When | Who is usually insured | What it does NOT cover |
|---|---|---|---|---|
| CAR, section I (damage) | Accidental material damage to the works in progress, materials and stored goods | From the start of the works to their reception | Developer, contractor and subcontractors, jointly | Damage the works cause to third parties; the defect emerging after completion |
| CAR, section II / third-party liability on site | Liability for damage to third parties arising from the execution of those works | During the construction period of the insured project | The same insureds as section I, subject to the particular conditions | The company's activity outside those works; damage to the works themselves |
| Contractor's general liability | Liability arising from the company's activity: public liability, employers' liability, contractors' and subcontractors' liability, completed works | Continuously, on an annual basis | The construction company and, depending on the sections, its workforce | Damage to the works themselves; the benefits surcharge, uninsurable by law |
| Decennial liability (LOE) | Material damage from defects affecting structural elements | Ten years from the reception of the works | Usually the developer as policyholder, for the benefit of successive owners | Damage during execution; wear and tear and deficient maintenance |
The content of each cell is market standard, not a statutory regime, except in the last row. The cover and exclusions that actually apply are governed by the particular conditions of each policy.
Who is an insured in each layer?
The answer changes completely from one layer to the next, and that is the source of disputes that take the board by surprise when it is already too late.
Under the CAR, the norm is joint insured status: developer, main contractor and subcontractors all appear as insureds under the same policy, and sometimes the design and supervision team as well. That is what allows a single contract to protect the whole project without arguing over who caused the damage.
That virtue has an exact counterpart. If everyone is an insured under the same policy, damage a contractor causes a subcontractor is not, technically, damage to a third party: it is damage between insureds. Without the relevant clause, section II does not respond. That is precisely the function of cross liability, which treats each insured as a third party in relation to the others, and it is worth checking that it has been bought and with what limit. In the other direction, article 43 of Law 50/1980 excludes the insurer's subrogation against persons for whose acts or omissions the insured is answerable, which in a well-built CAR closes the circle.
Under the general liability policy the logic is different: the insured is the company, and contractors are third parties. That is where contractors' and subcontractors' liability operates, where bought, with its own sub-limit. And under the decennial liability, the party required to arrange the guarantee is generally the developer, for the benefit of the building's successive owners.
Whether each party is insured in the layer that corresponds to it is not verified by a telephone call: it is verified with documents. That is the territory of the insurance documentation to require from a contractor, where a certificate for somebody else's CAR is often mistaken for evidence of the contractor's own liability cover.
Two provisions of the LOE worth keeping in mind
Without repeating the liability regime, already set out in our article on the ten-year structural warranty, two provisions of Law 38/1999 almost never come up and have a direct bearing on an insurance programme.
Article 18: claims are time-barred after two years. Actions to enforce the liability under article 17 for material damage are time-barred two years after that damage occurs, and the same period applies to recovery actions between the parties involved. It is a different —and much shorter— period from the guarantee periods of ten, three or one year. The guarantee period determines by when the damage may emerge; the limitation period, how long there is to claim once it has. Confusing them leaves dead claims on the table.
Article 19.8: a deductible capped by statute. On the one-year guarantee no deductible is allowed at all; on the remaining guarantees, the deductible may not exceed one per cent of the sum insured for each registered unit. This is extraordinarily rare in Spanish insurance law: the deductible, freely negotiated in every other commercial policy, has a statutory ceiling here. It is worth reading alongside what we explain on limits, sub-limits and deductibles.
One final caveat, so as not to mislead: article 19 and the Second Additional Provision of the LOE mean that, in practice, only the ten-year guarantee is compulsory, and only for buildings mainly intended for residential use; the one-year and three-year guarantees still lack implementing regulations. That said, the absence of an obligation to put up a guarantee does not remove the liability under article 17. These are two different planes: who is liable, and what must be deposited.
A well-built construction programme is defined before the first interim certificate, not at the claim. Request an analysis of your three layers.
The maintenance period and employers' liability on site
Between the reception of the works and the LOE regime there is a stretch that many programmes leave blank: the CAR maintenance period, or defects liability period. It is a temporal extension after completion whose duration is agreed in the particular conditions, and which the market offers in two intensities: a limited version, covering damage the contractor causes to the works while carrying out remedial work, and an extended version, adding damage whose cause lies in the construction period even though it manifests later. It is not the decennial liability and does not replace it: its perimeter is contractual and its horizon is measured in months.
The other exposure specific to construction sites is the workforce. Construction recorded 164 fatal accidents during working hours in 2025, according to the advance figures of the Workplace Accident Statistics published by the Ministry of Labour and Social Economy, and its incidence rate —5,787 accidents per 100,000 workers— is more than double the national average, according to the INSST annual report using 2024 data. That exposure is not covered by the CAR: it is covered by the employers' liability section within the general liability policy, with its own sub-limit.
Subject to one immovable limit. The benefits surcharge under article 164.1 of the Spanish General Social Security Act —an increase of between 30% and 50% in the economic benefits where the accident results from a failure of safety measures— falls directly on the infringing employer and, under article 164.2, may not be the subject of any insurance, any agreement to cover, offset or transfer it being void as a matter of law. On a construction site, with the preventive framework of Royal Decree 1627/1997 —health and safety plan and health and safety coordinator during execution— the likelihood of that surcharge being imposed is not anecdotal. No premium buys it.
The role of an independent broker
There is one fact that changes entirely how a CAR of any size should be bought: it will almost always be a large risks contract. The second paragraph of article 44 of Law 50/1980 provides that the mandate of article 2 does not apply to these contracts — in other words, the Insurance Contract Act ceases to be mandatory. The highlighting and written acceptance formalities of article 3 do not operate, and the case law of the First Chamber of the Spanish Supreme Court has accepted, in large risks, the incorporation of temporal delimitation clauses without those formalities. Translated: the law will not rescue a large account from a badly negotiated wording. Only prior negotiation will.
That is where an independent brokerage registered with the Spanish DGSFP under reference J0140 comes in. We act on the client's mandate, not on behalf of any insurer: we map the project's three layers against the contractual allocation of liability, we negotiate the wording of section II and how it dovetails with the company's liability policy, we close the double deductible before it appears and, if a claim arises, we defend the client's position before the market.
Frequently asked questions
What is the difference between contractors' all risks and third-party liability on site? The CAR, in its damage section, indemnifies the insured itself for what happens to the works in progress. Third-party liability on site, usually section II of the same policy, covers the damage the execution causes to third parties outside the project. One looks inwards; the other outwards.
Does contractors' all risks cover damage to third parties? Only if the liability section has been bought, and then subject to its limit and its exclusions. It is not an automatic consequence of the policy: it is worth checking in the particular conditions.
Does contractors' all risks replace the decennial liability? No. They operate on different timelines. The CAR protects the project while it is being built and during the agreed maintenance period; the ten-year warranty responds to structural damage emerging after the reception of the works, over ten years.
Who is an insured under contractors' all risks? Normally the developer, the contractor and the subcontractors jointly. That joint status makes it essential to check that a cross liability clause is in place, or damage between insureds may fall outside cover.
Can the decennial liability carry a deductible? Article 19.8 of Law 38/1999 allows no deductible on the one-year guarantee and caps the others at one per cent of the sum insured for each registered unit. It is a rare instance of a deductible bounded directly by statute.
Sources and legislation
- Law 38/1999 of 5 November, the Spanish Building Regulation Act, articles 17, 18 and 19.8, and the Second Additional Provision.
- Law 50/1980 of 8 October, the Spanish Insurance Contract Act, articles 43 (subrogation), 44 second paragraph (large risks), 73 (liability insurance) and 76 (direct action).
- Royal Legislative Decree 8/2015, consolidated text of the General Social Security Act, article 164, paragraphs 1 and 2 (benefits surcharge).
- Royal Decree 1627/1997, laying down minimum health and safety provisions on construction sites.
- Ministry of Labour and Social Economy, Workplace Accident Statistics, January–December 2025 advance release.
- INSST, annual report on accidents at work, 2024 data (incidence rates).
- UNESPA, industrial claims, August 2024 – July 2025 (average claim cost).
- Split of premiums and policies in the liability class: ICEA figures reported in the trade press (2026).
This information is for guidance only and does not constitute binding advice. Cover, limits and exclusions are governed in all cases by the particular conditions of each policy. New Brokers Correduría de Seguros, S.L., registered with the Spanish DGSFP under reference J0140.
