The legislator recently introduced a number of implementing regulations for the Architecture Act and more are expected in the near future. In this article, DLA Piper Hungary's lawyers outline the key details of the new, generally mandatory contractor's professional liability insurance, taking into account that contractors must have such insurance from 15 January 2025.
Background
Act C of 2023 on Hungarian Architecture ("Architecture Act") stipulates that a government decree shall provide the professional liability insurance required to carry out building contractor's activities. This government decree, namely Government Decree No. 286/2024 (IX. 30.) on the amendment of certain government decrees related to construction in connection with the entry into force of Act C of 2023 on Hungarian Architecture ("Government Decree"), entered into force on 1 October, amending the Construction Code, i.e., Government Decree No. 191/2009 (IX. 15.) on building contractor activities.
Under the new mandatory provisions, building contractors are required to have professional liability insurance starting from 15 January 2025.
Previous legislation
The Architecture Act replaced, among others, Act LXXVIII of 1997 on the Formation and Protection of the Built Environment ("Former Architecture Act"). The previous rules of the Former Architecture Act did not require liability insurance for contractors, and the provisions of the Construction Code only required it in a limited scope: the rules on the contents of the construction contract, the handover of the construction site, the opening of the construction log, and the commencement of construction activities referred to the contractor's obligation to have the mandatory professional liability insurance specified in the government decree on the simple notification of the construction of residential buildings. Professional liability insurance was only mandatory for the main contractor for the construction of new residential buildings with a net floor space not exceeding 300 square meters or the expansion of existing residential buildings to a net floor space not exceeding 300 square meters.
New general rules for the mandatory professional liability insurance
As mentioned above, the Government Decree amends the Construction Code (primarily the new provisions of Sections 21/B to 21/G and Art. (5) of Section 46 of the Construction Code are relevant).
As per the new legislation, building contractors are required to take out professional liability insurance to cover damages resulting from their construction activities. The Construction Code does not define the term of "building contractor", but frequently uses it. Therefore, in our opinion, the definition provided in the Architecture Act is applicable (since this Act is the superior law compared to the Construction Code). According to this definition, the main contractor, the client contractor and the subcontractor are all considered to be building contractors.
The Government Decree specifies the cases to which mandatory professional liability insurance must extend. These include personal injury and property damages, as well as grievance awards in connection with non-material harms related to personal injury. The contractor is liable for damages and is obliged to pay grievance awards as provided by law.
In addition, the liability insurance shall cover damages resulting from the activities of persons employed by the insured building contractor, persons having other employment-related relationships with the insured contractor and subcontractors engaged to carry out the building contractor activities and services for which the insured contractor is liable.
The Government Decree also sets out a tiered system for the amount of coverage that liability insurance must provide per insured event and per year.
Administration and audit
The administration and sanctioning activities related to professional liability insurance are mainly carried out by the Hungarian Chamber of Commerce and Industry ("HCCI"). Notification of the conclusion of a professional liability insurance contract and of the termination of the liability insurance relationship must be made to the HCCI. The existence of the insurances is also verified by the HCCI: if the building contractor does not have professional liability insurance, it first prohibits the building contractor from continuing its professional activity, then, if the grace period has expired without result, it deletes the contractor from the register. Additionally, the construction authority can also sanction the building contractor by prohibiting building contractor activities if it finds that the contractor is not listed in the HCCI's register as having the required insurance.
In line with the previous rules regarding simple notification, the liability insurance's policy number or the building contractor’s declaration must be included in construction contracts.
Who exactly needs to obtain insurance and when?
The Government Decree provides that the building contractor must have liability insurance from 15 January 2025.
Specifically, according to the Government Decree, the provisions on professional liability insurance must be applied to construction plans handed over, construction contracts concluded, and building contractor activities carried out after its entry into force (i.e. 1 October). Therefore, contracts and activities that were concluded or started before 1 October do not require mandatory professional liability insurance. However, if the building contractor concludes a new contract or starts new construction activities from now on, they are obliged to conclude a professional liability insurance contract.
By Viktor Romsics, Senior Associate, and Kalman Kelemen, Junior Associate, DLA Piper
