Insurance for collateral and consequential damages

Which insurance covers damages collateral to repairs, consequential damages and extended damages collateral to repairs in Germany?

Insurance coverage for damages resulting from repairs

In the case of damages that occur during repairs, the tradesman or entrepreneur’s business liability insurance usually covers them. However, this depends on the specific circumstances of the damage. Damages that occur during repairs occur when additional damage is caused during the repair of a work that has already been carried out (e.g. during a repair or the elimination of a defect). Example: A roofer has to carry out waterproofing work on a building and seal floor panels using welded sheets. After the work has been completed, it is discovered that the panel sealing was not carried out correctly and that it is absorbing moisture. The panels have to be replaced and the sealing repaired.

The following insurances offer coverage in Germany:

Public liability insurance

This insurance covers damage caused to third parties during the company’s activities. So if additional damage occurs during repairs (e.g. due to an error during rework), this would usually be a case for public liability insurance.

Construction insurance 

If the damage is on a construction site, construction insurance (often referred to as building insurance ) could also apply. This insurance covers unforeseen damage during construction, including damage that may occur during repairs.

Product liability insurance

If the damage resulting from repairs was caused by a defective product, the manufacturer’s product liability insurance may apply.

When do business liability insurance and construction insurance not pay out?

Generally the insurance excludes pure repair costs or so-called performance damages, i.e. costs for correcting an already existing defect. They only pay for damages that go beyond the mere elimination of the defect (so-called “consequential damages”).

Insurance coverage for consequential damages:

Consequential damages are damages that arise from a defect in a work or service, but do not affect the defect itself, but damage other areas. In contrast to pure defects or performance damages, which are caused by the elimination of the defect itself, consequential damages concern the consequences of a defect that occur in other parts of the work or in other goods. Example: A leaky roof will cause water to enter a building and damage the building’s inventory or structure. The defect itself is the leaky roof, but the consequential damage is the water damage to the underlying structure.

1. Business liability insurance : Consequential damage caused by defects is usually covered by business liability insurance. This insurance covers damage caused to third parties by the repair of defects. If the defect, e.g. the leaky roof, damages other parts of the building or the property of the owner, business liability insurance in Germany will pay out. It is important to note that liability insurance only covers consequential damage, not the repair of the defect itself. This means that the costs for repairing the leaky roof would not be covered, but the costs for the water damage caused by the roof would be covered.
2. Construction insurance : In construction projects, construction insurance can also cover consequential damage caused by defects. This insurance protects builders and contractors against unforeseen damage during the construction phase, including damage caused by defects that causes consequential damage.
3. Product liability insurance : If the defect is due to a faulty product (e.g. a defective component) supplied by a manufacturer, the manufacturer’s product liability insurance may cover consequential damage. This is relevant if, for example, a faultily manufactured pipe leads to water damage when used by the customer.

Difference between consequential damage and damage caused by repair. Summary:

Insurance coverage for extended repair-related damage

Extended incidental damages are damages that go beyond the normal incidental damages that occur during repair. They arise when, during the repair of a defective work or a defective service, not only the actual work itself is damaged, but also other parts or areas of a construction project or project that were not originally defective. Extended incidental damages therefore go a step further. They refer to damages that not only affect the defective product or its immediate surroundings , but also cause consequential damage or damage to third parties or other objects that are not directly part of the repair.

Example:

When repairing the faucet, the craftsman caused water damage in the adjacent room due to improper handling, which damaged furniture. The apartment had to be renovated and the owner of the apartment could not rent it out for the duration of the renovation. He demanded compensation for the lost rental income. This would be an extended incidental damage caused by repairs.

Extended repair collateral damage as an additional tariff in the commercial liability insurance in Germany

Many insurance companies only offer coverage for extended repair-related damage in the form of additional modules that must be optionally included in the business liability insurance. These types of damage are often not automatically covered in standard policies. It is therefore important that the tradesman’s business or company explicitly integrates this protection into the insurance coverage.