Construction work involves various risks: construction workers or passersby may be injured, and damage may occur to neighboring properties and buildings or to the construction project itself. If the party responsible cannot be identified, the project owner is generally held liable. However, builder’s liability insurance can protect you from the financial consequences.
What is builder’s insurance, and why do you need it?
“There is no such thing as ‘builder’s insurance’ in Austria in that sense. The term is generally understood to refer to builder’s liability insurance,” says Norbert Jagerhofer, an insurance broker and consultant. This insurance protects builders from third-party claims that may arise from damage resulting from construction work, whether in the course of new construction, additions, or renovations. The coverage amount is determined on a case-by-case basis and depends on the risk or the builder’s specific needs.
What does builder’s liability insurance cover, and what does it not cover?
Builder’s liability insurance covers, on the one hand, property damage arising from the risks associated with being a builder or from genuine, unpaid neighborly assistance—but not from shoddy workmanship. “The duty of care under the Construction Site Coordination Act also applies to builders. For example, if a construction worker is injured on the job site or if a passerby suffers harm due to debris on sidewalks or roadways that can be traced back to the job site, the building owner is held liable,” explains Jagerhofer. This applies even if a general contractor has been hired. “The building owner is the first line of defense for all claims. They must either defend against them or settle them,” says insurance expert Jagerhofer. Only then can they seek recourse from the general contractor.
In addition, property damage is also covered by the builder’s liability insurance: For example, if a neighbor’s house is damaged during construction, this insurance provides coverage.
Builder’s liability insurance does not cover damage caused during construction by vandalism, lightning, storms, or water to the builder’s own property or home, or to materials stored on the construction site. “You need construction insurance for that,” says Jagerhofer. It covers property damage that cannot be attributed to a specific party. This also applies to consequential damage resulting from improper workmanship, as well as the theft of windows, doors, radiators, or plumbing fixtures that have already been installed.
Is builder’s liability insurance mandatory in Austria?
“Builder’s liability insurance isn’t required, but I think it’s a good investment,” said Jagerhofer.
How much does builder’s liability insurance cost in Austria?
In Austria, the cost of builder’s liability insurance—which can be purchased as part of homeowners insurance—ranges from 0.4 to 1 per mille of the construction costs, depending on the risk profile.
How long is the term of a builder’s liability insurance policy?
The term of a builder’s liability insurance policy begins when the construction site opens and generally ends with the notice of completion. “However, there is often also a three-year reporting period starting from the date the property is taken over. This makes perfect sense, because damage to neighboring buildings sometimes doesn’t become apparent until some time later,” says Jagerhofer.
When should you take out builder’s liability insurance?
Builder’s liability insurance should be purchased before construction begins—as mentioned, no later than when the construction site opens.
What is the difference between builder’s liability insurance and construction insurance?
“As I mentioned, a builder’s liability insurance policy only covers damage suffered by third parties as a result of the construction project,” says Jagerhofer. If the goal is to transfer the risk of damage caused during construction by vandalism, lightning, storms, or water to one’s own property or home, or to materials stored on the construction site, construction insurance is required. “In Germany, this is called construction performance insurance,” says Jagerhofer. It covers property damage to your own property that cannot be attributed to a specific cause. This also applies to consequential damages resulting from improper workmanship, as well as the theft of windows, doors, radiators, or plumbing fixtures that have already been installed. The annual premium for construction insurance, on the other hand, ranges from 1.2 to 2.5 per mille of the construction costs.
What is construction insurance?
Shell construction insurance covers only fire, storm, and water damage caused by burst pipes to the building shell. “That’s whyI think construction insurance makes more sense, because it provides all-risk coverage during the construction phase,” says the insurance advisor.
Our expert
Norbert Jagerhofer is the managing director of Norbert Jagerhofer GmbH and a court-sworn and certified insurance expert. He is also the author of specialized books and articles.
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