obavezno osiguranje od odgovornosti građevina

Mandatory Third Party Liability Insurance

What Should an Investor or Contractor Know?

Negligence or incompetence? Belgrade remembers. Four houses sank into the ground in 2008 in Dubljanska Street as collateral damage from a neighboring construction. “Inept builders” or poorly investigated circumstances led to the collapse of surrounding buildings years later. In December last year, half a house in Vojvode Stepe Str. fell into a construction site, and the construction on Vračar, in Vidovdanska Street in 2021, is also well remembered when a building simply disappeared into a pit intended for the foundation of a new building.

Construction Rules and Regulatory Changes

Construction rules in Serbia change almost every year, with significant regulatory changes occurring in 2014. The latest amendment to the Law on Planning and Construction in Serbia, from August 4th 2023, requires investors or contractors to secure third party liability insurance, to minimize and cover potential damages caused during construction works. This reform aims to address safety and liability issues in the construction sector. Such insurance was not mandatory, but numerous incidents of building collapses and damages to neighboring properties highlighted the need for stricter regulations.

What Does the New Law Entail?

According to the Regulation on the Conditions of Insurance for Professional Liability, issued in the "Official Gazette of the Republic of Serbia", number 81 from September 22, 2023, based on articles 129a and 201, in relation to article 148 of the Law on Planning and Construction, it is prescribed that investors or contractors must secure liability insurance for damages towards third parties, as part of the documentation submitted before the commencement of construction. This insurance financially protects individuals or entities not directly involved in the project but who could suffer damage due to construction works.

For the third party liability insurance policy to be in accordance with legal provisions, it is necessary that the sum insured, per single damaging event and in total for the duration of the insurance, amounts to a minimum of 20 percent of the value of the works indicated in the act approving the execution of works, but not more than 10 million euros in the dinar equivalent at the National Bank of Serbia's medium exchange rate on the day of contracting.

Profesionalna odgovornost građevina

How Common Was Liability Insurance for Contractors Previously?

Data from the National Bank of Serbia show a gradual increase in the number of issued third party liability insurance policies over the last three years. However, these numbers represent a small portion of the total number of construction project insurance policies contracted in the same period. Regarding concluded liability insurance policies for contractors, including contracted liability insurance for assembly work contractors and project liability insurance, over the years from 2021 to 2023, the numbers were: 2,693, 2,869, and 3,100 policies. However, it must be considered that liability insurance is often concluded as an integral part of the construction or assembly insurance policy, thereby protecting the contractor from risks that also cover damages towards third parties, which alters the aforementioned statistics.

As an additional incentive, before the introduction of the new law, the average premium for this type of insurance was reduced year by year over the last few years, making this type of insurance a relatively accessible risk management tool for contractors. Nonetheless, large construction contractors in Serbia opted to insure their projects even before this insurance became mandatory, so the new regulation does not represent a significant change for them. Moreover, they emphasize the importance of reinsurance for larger objects.

Who Else in Serbia Must Have Third Party Liability Insurance?

It's important to note that Serbia has already established regulations requiring professional liability insurance for various professions, including bankruptcy administrators, public notaries, enforcement officers, certified appraisers, lawyers, etc. Those involved in construction projects, such as engineers, architects, and supervisors, also fall into this category. Any company or entrepreneur performing tasks related to the creation and control of technical documentation, technical inspection, or professional supervision must also be insured against liability for damage that could be inflicted on a third party. During the execution of the contract that the contractor has concluded for the aforementioned tasks, in the case of entrepreneurs, the sum insured for the contract of professional liability insurance amounts to at least 20,000 euros in the dinar equivalent at the medium exchange rate of the National Bank of Serbia, while for other legal entities, the minimum amount is 65,000 euros in the dinar equivalent.

Damages mentioned at the beginning of this text may not necessarily be covered by the liability insurance policy. This depends on the way the liability insurance is contracted, the insurance conditions, and the type of policy.

The introduction of mandatory liability insurance for contractors is a positive step towards ensuring greater safety and financial protection for the construction sector in Serbia.