The FIDIC model contracts – the Red Book for construction and the Yellow Book for design and build – reached the Hungarian market through EU-funded infrastructure projects, and with international clients (the Employer, in FIDIC terms) they are still the standard today. According to a 2023 analysis in Közbeszerzési Értesítő Plusz (KÉ+, the professional journal of the Public Procurement Authority), they have not become general industry practice in Hungary, but the authors highlight precisely the predictable, pre-agreed allocation of risk as their advantage – and the insurance clause is the tool that puts this risk allocation into effect. As a broker, I see the Hungarian contractor standing between two languages here: the contract sets out requirements in English terms, the Hungarian insurer responds with Hungarian policy conditions, and when cover is evidenced, the Engineer puts the two side by side. This article translates each side for the other; for English–German–Hungarian terms, the glossary can help.
- The insurance clause of the FIDIC Red and Yellow Books (Clause 18 in the 1999 edition, Clause 19 in the 2017 edition) prescribes not a product but a list of requirements: who the insuring Party is, in whose joint names the policy is issued, which risks it must extend to, and by what deadline cover must be evidenced.
- Hungarian contractors' all risks (CAR) conditions are built on the same international model, so most requirements – joint insureds, cross liability, strike, riot and civil commotion (SRCC), consequential damage from design defects, taking parts into use, the maintenance (defects liability) period – can be covered by clauses, but none of them is automatic, and the details differ from insurer to insurer.
- The typical points of conflict are the approval of the insurer, the logic of a liability limit ‘per occurrence, with no limit on the number of occurrences’ as against an annual aggregate limit, and the departures tailored to Hungarian law in the Particular Conditions – these are worth clarifying before the policy is taken out, not when the evidence of cover is submitted.
What does the insurance clause require?
Clause 18 of the 1999 Red and Yellow Books requires three insurances: insurance of the Works and the Contractor's Equipment, liability insurance for personal injury and property damage caused to third parties, and insurance of the Contractor's Personnel; Clause 19 of the 2017 edition also names – for the Yellow Book – professional liability insurance for the design activity. The contract designates an ‘insuring Party’ – as a general rule the Contractor – who takes out the policies with insurers and on terms approved by the Employer, provides evidence of cover by the deadline set in the Appendix to Tender or the Contract Data, then also hands over copies of the policies, and may not materially change the terms without the other Party's approval. If the insuring Party fails to do this, the other Party may take out the insurance itself and set off the premium. The clause also states that insurance does not limit the Parties' contractual liability: whatever the insurer does not pay is borne by the party that carries the risk under the contract. In practice, the requirements are approved not by the Engineer but by the Employer – the Engineer is the one who checks performance and on whose desk the evidence of cover and the policy conditions end up side by side.
Insurance of the Works: the part that corresponds to the CAR
The contract requires the Works to be insured in the joint names of the Contractor and the Employer, for the full reinstatement cost – taking into account the costs of demolition, removal of debris, professional fees and profit –, from the deadline for evidence of cover until the issue of the Taking-Over Certificate, and then until the end of the Defects Notification Period (in CAR terms, the maintenance period) for loss or damage whose cause arose before taking over or which the Contractor causes while remedying defects. Under the contract, the policy must also extend to some of the Employer's risks: loss or damage caused by riot and disorder, by the Employer's design errors and by unforeseeable forces of nature – except what cannot be insured on commercially reasonable terms –, as well as loss or damage that the Employer causes to another part of the Works because of a part already taken into use.
In the language of Hungarian CAR conditions, this list is a series of clauses, because Hungarian conditions are also built on the international reinsurers' model. Joint names means listing the insureds: the Contractor, the Employer and the subcontractors – the article on the question of policyholder and insured gives a picture of this. Strike, riot and civil commotion (SRCC) is typically excluded by default in Hungarian conditions and can be bought back by a clause, with a separate limit and deductible. Consequential damage arising from design defects is the job of the designer's risk clause – even this does not cover redesigning and repairing the defective part itself, as I described in the article on design defects; with the Yellow Book, where design is the Contractor's responsibility, designer's liability insurance is also an issue. A part taken into use is a matter for the use-and-occupation clause, and the maintenance period for the maintenance period extension – FIDIC asks for the extended version that also covers damage caused while defects are being remedied. Additional costs – overtime, express freight, debris removal – are likewise a clause or a sub-limit in Hungarian conditions. Each item is a separate request, and none of them is in the policy just because the contract asks for it: they must be compared item by item before the policy is taken out.
Liability insurance and personnel
For damage caused to third parties, the contract requires liability insurance in joint names with cross liability – meaning that the policy works as if each insured had been issued a separate policy, and damage that the Employer and the Contractor cause to each other is also covered. It sets the limit per occurrence and does not limit the number of occurrences. Here there are two typical points of conflict with Hungarian practice. The first is that Section II of a Hungarian CAR policy and contractors' liability insurance typically work with an annual or project aggregate limit – if the aggregate limit equals the per-occurrence limit, the ‘unlimited number of occurrences’ requirement is formally not met; this is usually resolved either with a higher aggregate limit or by amending the Contract Data, and it is worth discussing this with the insurer. The second is cross liability: the clause in Hungarian conditions typically has exceptions – it does not cover injury to one insured's employees caused by another insured, or the insured works themselves – so it is worth showing the wording of the clause to the Engineer as well. Insurance of the Contractor's Personnel is, in the Hungarian system, a combination of employer's liability and group accident insurance, as I wrote in the article on accident protection for employees.
Approved insurer, evidence of cover, Particular Conditions
With international clients, the ‘approved insurer’ stipulation often implies a rating requirement; most insurers operating on the Hungarian market belong to international groups, but the rating required and the way it must be evidenced vary from project to project, and this needs to be checked at the tender stage, not when the policy is taken out. The Appendix to Tender or the Contract Data counts the deadline for evidence of cover from the Commencement Date: if the process of taking out the CAR takes longer than that, it is the project's first breach of contract – a separate article covers how evidence of insurance works. The KÉ+ analysis also warns that FIDIC must be adapted to the Hungarian Civil Code (Ptk.) and the decree on construction activities in the Particular Conditions; in the Hungarian version of the insurance clause, this is often where a limit stated in forints and aligned with Section 26 of Government Decree 322/2015 and the guidance of the Public Procurement Authority appears, along with a reference to compulsory contractors' liability insurance or a requirement for evidence of insurance in Hungarian. The Particular Conditions are therefore not a footnote but half of the insurance requirement.
What should the contractor do?
At the tender stage, read the insurance clause and the related Contract Data all the way through: deadlines, limits, maximum deductible, approval conditions. Before taking out the policy, draw up an itemised list of the requirements, and next to each item note which clause, which insured and which limit answers it – if you let me know, I prepare this comparison together with the request for quotes. Anything that is the Employer's risk under the contract but cannot be insured on commercially reasonable terms should be recorded in writing, not passed over in silence. In the event of a claim, notification goes through the insurer's claims line, but FIDIC also has its own notice deadlines, which operate as time bars – the two must be handled in parallel. The article on foreign clients offers a parallel on the expectations of German clients.
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Sources
- FIDIC Conditions of Contract for Construction (Red Book, 1999) – Clause 17.3 Employer's Risks, Clause 18 Insurance (publicly available General Conditions)
- Zsolt Szigeti – András Zsigmondi: In delivering construction projects, are a developer's traditional general terms and conditions (ÁSZF) more efficient than the FIDIC contract system? (Közbeszerzési Értesítő Plusz, 2023/12)
- Government Decree 322/2015 (X. 30.) on the detailed rules of public procurement for construction investments (Section 26 – requirement of liability insurance)
- Hungarian Civil Code (Ptk., Act V of 2013) – contract for work, insurance contract
