Sense and liability

The role of insurers in the Spanish construction sector is undergoing fundamental changes stemming from the courts’ interpretation of the 1999 Construction Planning Act (Ley de Ordenación de la Edificación). Although the act is six years old it is only recently that its new principles have been tested by the courts.

The existing rules

The act is concerned with the safety and quality of new buildings and sets out, for the first time in Spain, the responsibilities of the different operators involved in the construction process: developer, contractor, designer, project director and executive project director. The last three can be either architects or engineers, as required by the particular project.

The Construction Planning Act is also concerned with the insurance cover that must be arranged for the benefit of the eventual owner. In this respect, the developer is required to establish latent defects insurance, or what is known as responsabilidad decenal, for a minimum of 10 years. This is independent from any public liability cover that the contractor may have sought and, if it is not in place, the building project will not receive official permission to begin.

Of particular interest to insurers is the fact that recent case law has departed from the principle that all operators should be held jointly liable in the event of a loss. This is important for insurers to understand and be aware of since, if the general principle of joint liability is upheld, then all the insurers chip in. If, on the other hand, the courts adopt the view that liability should be a matter for the individual operator who was liable for the loss, such as the contractor or architect, then only the insurer of the party found liable responds.

The historical viewpoint

Backtracking a little shows how this point has been reached. The traditional view under Spanish law was that, if buildings collapsed or suffered structural damage, and it was impossible to ascertain the extent to which each defendant was liable, as long as there were no exonerating circumstances such as force majeure, then the developer and architect (or engineer in some instances) were to be held jointly liable for the loss.

The above principle is respected under the new regime, and at first glance the end result is much the same – joint liability – although extended to all parties participating in the building process, not just developer and architect. However, dissenters argue that, if the act clearly sets out the activities and responsibilities of those involved in a building exercise, surely it must be possible to attribute liabilities individually so that those who had nothing to do with the loss do not get sucked into the joint liability conundrum?

Individual accountability

The courts are beginning to recognise the logic of this argument. There are now reported Court of Appeal decisions in which the designer, project director and executive project director – effectively the technical team – were exempted from liability since the developer delivered the building without having obtained the relevant completion certificates from them. The court found that the technical team could not be liable for the defects of a building they had not certified as complete. The developer and his insurers alone responded for the full claim.

Furthermore, in a Supreme Court decision (23 June 2004), developers were exempted from liability for injuries sustained by a bystander, as a result of parts of the building detaching and falling upon him. The court argued that, although developers are strictly liable for latent defects, it is a different matter when the loss is caused by construction or design defects, where factual evidence should be taken into consideration in order to establish which parties are liable for the loss. The same reasoning has been followed in a subsequent Supreme Court decision. Two Supreme Court rulings are required to constitute precedent in Spanish law. Consequently, judges can now follow this argument without fear of being reprimanded by their senior colleagues.

This is all definitely good news for the building sector and those striving to provide quality services, since each operator will be held accountable for its own actions. Insurers, however, will need to assess prospective policies carefully, and attempt to keep a quality-conscious portfolio. Otherwise, if things go wrong, the joint liability umbrella may no longer be there to help spread the loss.

The debate continues

That said, it can be seen from other judgments, such as that of 18 June 2004, that the Supreme Court is still debating which way to go. A Supreme Court decision of 18 June 2004 illustrates a failed attempt by developers to try to get off the hook by arguing they had no responsibility in the actual construction process, for which contractors should be liable according to article 1591 of the Civil Code.

The court could have cut that argument short by stating that, the Civil Code being of general application when there is no specific regulation, article 1591 has been superseded by the enactment of the act. Instead, the court took a historical approach and reminded the market that it has been applying article 1591 extensively since the 1960s when it is impracticable to apportion liability on the evidence available.

While recognising that each operator should respond only for its contractual or statutory responsibilities, in some instances the court has justified holding operators jointly liable to ensure that the end owner is adequately protected. Where exactly this will lead matters remains to be seen, as this is due to the role of precedent in Spanish law, which is a curious one. It could be said that Supreme Court decisions are as binding as those of the Commonwealth’s Privy Council which, in England, only have authoritative force. In Spain, while the lower courts are advised to follow the Supreme Court, they do not have to as long as they justify their reasons.

Alex Guillamont is a solicitor in the Madrid office of law firm Kennedys