Italian Supreme Court rules on Decennial Liability Policies on buildings

The Italian Supreme Court (Third Civil Section) has issued ruling no. 1909 of January 27, 2025. The ruling clarifies the nature and enforceability of decennial insurance policies that construction companies have to enter into in favor of property buyers under Legislative Decree no. 122/2005 for defects emerging after construction works are completed.

The ruling redefines the interpretation of the insured party’s rights and obligations, emphasizing the role of the buyer in enforcing these policies.

 

Background of the case

The case arose from a structural failure involving an industrial warehouse and its surrounding yard, used by a company (Company A) under a financial leasing contract. The warehouse, built by a third company, collapsed in May 2009 due to a landslide, prompting Company A to initiate legal action against various parties, including the designers, project managers, construction companies involved in the project and the construction company’s insurer.

Company A sought compensation under Article 1669 of the Italian Civil Code, which governs structural defects affecting buildings’ stability, and Article 2043, which pertains to general tort liability. The Court of First Instance dismissed the claim under Article 1669 due to the expiration of the statute of limitations, granting only partial compensation under Article 2043.

The Court of Appeal upheld this ruling. The court argued that any potential reversal wouldn’t have affected the amount of compensation but merely the enforceability of the decennial insurance policy entered into force by the construction company in respect of which Company A lacked standing.

Company A then appealed to the Supreme Court of Cassation, challenging both the dismissal of its claim under Article 1669 and the Court of Appeal’s decision on the insured party’s rights under the policy.

 

The Supreme Court’s key rulings

The nature of the policy

The Supreme Court stated that the decennial insurance policy mandated by Legislative Decree no. 122/2005 isn’t liability insurance for the constructor but rather insurance for the benefit of the buyer. The policy aims to provide direct protection to the buyer of the property rather than merely indemnifying the builder.

Traditionally, disputes have centered on whether only the constructor (as policyholder) can enforce the policy or whether the buyer of the property also has direct standing. The Supreme Court determined that the buyer, as the insured party, has the right to directly claim benefits under the policy.

But the ruling also acknowledges the possibility of concurrent standing, meaning that while the buyer is the primary insured party, the constructor can, in some cases, also have the ability to act under the insurance contract; for example, if explicitly agreed in the policy terms.

The implications for corporate buyers

One of the most debated aspects of the ruling concerns whether corporate entities can benefit from these protections. The court clarified that Legislative Decree no. 122/2005 applies primarily to natural persons, meaning that the statutory obligation to provide decennial insurance applies when the property is purchased by an individual, not necessarily when acquired by a company.

However, if a corporate buyer has been explicitly designated as the insured party in the contract, it retains standing to enforce the policy against the insurer. This ruling expands protection to corporate buyers, if the policy was contractually intended to cover them.

Impact on the statute of limitations

The court also revisited the timing of claims under Article 1669 and ruled that the limitation period should be assessed based on the progressive worsening of the defect, rather than a rigid calculation from the initial discovery of the issue. This means that if the damage evolved over time, the statute of limitations doesn’t necessarily begin at the first sign of defects but when the full extent of the damage and the liabilities involved became apparent.

 

Legal and commercial implications

This decision has substantial implications for the real estate and insurance sectors, and for construction companies and property buyers.

For real estate developers and constructors:

• The ruling reaffirms their obligation to provide insurance coverage that directly benefits the buyer, rather than merely covering their own liability.
• It potentially limits their ability to rely on contractual exclusions that restrict buyers’ rights under such policies.

For property buyers:

• The decision strengthens their position by confirming their right to claim directly against the insurer without needing the builder’s intervention.
• This enhances financial protection for buyer, ensuring they can access compensation even if the constructor faces insolvency.

For insurance companies:

• The ruling could increase claims directly from buyers, requiring insurers to carefully draft policy terms to define the scope of their obligations.
• It may lead to greater scrutiny in underwriting and more stringent conditions in decennial insurance policies.

 

Conclusion

The Supreme Court’s ruling sets a precedent that strengthens the rights of property buyers under decennial insurance policies. By distinguishing between insurance against damages and liability insurance, the court ensures that buyers, whether individuals or corporate entities, can claim protection under the policy, if the contract designates them as beneficiaries.

This decision ultimately aligns with the Legislative Decree no. 122/2005, which aims to provide effective and equitable protection to property buyers, particularly in cases where structural defects arise long after construction is completed. The ruling also highlights the importance of precise contract drafting, ensuring that all parties clearly understand their rights and obligations under the policy.