Mandatory Decennial Liability Insurance in the UAE
Following Article 880 of Federal Law No. 5 of 1985 (UAE Civil Code), contractors, architects and designers are collectively and solely liable to the employer for any total or partial structural collapse of buildings, and any deficiency that threatens the security and stability of a structure, for a limit of ten years from the date of handing over works to the concerned individuals. This liability is known as "decennial liability".
An important fact about this liability is that it imposes a strict burden, which is, proof of negligence is not required. The only possible way to avoid decennial liability is if the failure is because of an external cause which involves a third party.
Decennial liability makes significant cost consequences for those architects and contractors who are strictly liable for faults. Decennial liability insurance (DLI) covers for these cost consequences. In the UAE, DLI is available either as a standalone policy or as an extension to Contractors/Construction All Risks (CAR). Presently, a declaration of a limit upon the uptake of DLI in the UAE construction industry; this is presumed to be due to costs and the absence of familiarity with this particular issue. The observation of this absence is through the popular misconception that the policies as mentioned earlier (Erection All Risks or CAR) provide ample coverage. But, in the case of decennial liability, this is not true as the policies typically contain a list of exceptions to defects and also provide coverage for a limited amount in ten years.
In late 2018, UAE Insurance Authority planned to make DLI compulsory for engineers and contractors, for which introduction could be in 2019. The changes proposed will change the low uptake of DLI and guarantee the protection of the employers in the event of a structural default. There will be an array of costs associated with the new mandatory requirement, and project costs will significantly increase. It is urgent now more than ever, for consultants, contractors and insurers to understand in detail about the issue of decennial liability and risks associated with this liability.