The contractor's general civil liability insurance (VCTA in Latvian) is compulsory, but it is not built to protect the client's property. Two mutually independent exclusions together mean that damage to the very building where the works are taking place most often stays outside the cover. That gap is filled by a CAR policy, not by the liability policy.
This article grew out of a conversation that repeats itself in almost every renovation project. The client receives the contractor's general liability policy with a limit of EUR 150,000, files it with the project papers and treats the matter as closed. The limit is real. The policy is in force. And yet, if the contractor damages the very building it is working in, there will most likely be no claim payment.
The reason is not a dishonest insurer. The reason is that general liability is simply a different instrument, and that is visible in the regulations themselves.
What general liability covers under the compulsory rules
In Latvia, compulsory contractor's civil liability insurance is governed by MK noteikumi Nr. 502 – the Cabinet of Ministers regulations of 19 August 2014. If the works require a building permit or a declaration card for the simplified renovation of a building's facade, the works may not be carried out without such insurance.
The key provision is paragraph 34 of the regulations. It provides that the insurer covers loss caused to third parties – in the event of damage to or destruction of property, and for harm to life or health.
Now compare that with paragraph 15, which deals with a construction specialist's professional civil liability insurance. There the cover extends to loss caused to other participants in the construction process and to third parties.
And the client, the initiator of the construction, is not a third party. The client is a participant in the construction process – the same party that ordered the works, is paying for them and will accept the result.
The first exclusion: participants in the construction process
Most insurers' general civil liability wordings contain an exclusion for loss caused to participants in the construction process. The clause number differs from insurer to insurer, but the list is usually similar: the financier, the initiator of the construction or client, supervisory authorities and specialists, construction specialists and other contractors.
Here is the nuance that is easy to miss: this exclusion works on the status of the injured party, not on the type of loss.
In practice this means:
- The contractor damages a neighbouring building while excavating – the neighbour is a third party, and the claim falls within the cover.
- The same works damage the client's building – the claimant is a participant in the process, and the cover does not respond. Not because a building was damaged, but because the claim is brought by the client.
This is not "only the works are excluded". It is "the client itself is excluded as a claimant" – regardless of what exactly was damaged.
The good news: many insurers will remove this exclusion for an additional premium. In a quote it usually shows up as a separate line of cover. If no limit or premium is stated against it, the cover is not included – you can ask for it and compare prices.
The second exclusion: the property being worked on
The second exclusion is entirely independent of the first. It applies to property that the insured is working on, renovating or otherwise affecting in the course of its work.
In a renovation project that is effectively the whole scope of works: the facade, the stairwell, the windows, the external doors, the utility services, the heating system. Everything the contractor touches is outside the liability cover.
And unlike the first one, this exclusion is rarely removed in practice. The reason is a matter of principle: liability insurance covers accidental damage to someone else's property, not the quality and the result of your own work. If a liability policy paid for redoing your own work, it would no longer be liability insurance – it would be surety bonds and guarantees at a different price.
The realistic goal in negotiations is a sub-limit with an increased deductible, not the removal of the whole exclusion.
What is and is not covered in practice
| Situation | General liability cover | Why |
|---|---|---|
| A neighbouring building is damaged or a passer-by is injured | Covered | The injured party is a third party |
| Damage to the part of the client's building the works are on | Not covered | Both exclusions at once |
| Damage to a part of the client's building the works are not on (for example, fire from welding spreads to the roof) | Not covered | The exclusion for participants in the process |
| Damage to the works themselves and to materials for installation | Not covered | That is the job of a CAR policy |
| Harm caused to a third party by a subcontractor | Usually covered | The regulations provide cover for the activity of the main contractor and of the subcontractors it engages |
The table reflects a typical situation. The actual cover always depends on the particular insurer's policy wording and on the special conditions of the policy.
Why it is noticed too late
Three reasons that keep recurring:
- The limit looks convincing. EUR 150,000 is a real sum, and the client reasonably assumes it means something. It does mean something – only for a different set of claimants.
- A copy of the policy is a document the building permit process asks for. It is requested, received and filed. A check of what it actually covers is not part of that process.
- The exclusions are in the policy wording, not in the policy itself. The policy shows the limit and the deductible. Both exclusions sit in the text of the policy wording, which is rarely opened – usually only once a loss has already happened.
What can realistically be achieved in talks with the insurer
If the policy has not yet been paid for and incepted, a correction is usually possible. Two specific questions worth asking in writing:
- On the exclusion for participants in the process: ask for cover to be included for loss caused to the initiator of the construction, stating the limit, the deductible and the premium. For many insurers this is a standard extension.
- On the exclusion for the property being worked on: ask whether the exclusion can be narrowed by a sub-limit and an increased deductible. If not, ask for that to be confirmed in writing.
A written answer to the second question is valuable even when it is a refusal. The insurer's confirmation that the existing building is not covered by the liability policy is the clearest argument for why the project needs a CAR policy.
The right instrument is CAR
Construction all risks insurance (CAR) is property insurance, not liability insurance. It covers the works and the materials themselves, and with a separate existing property section it can also cover the building in which the works are taking place.
Here is a nuance worth checking in every quote: insurers usually tie the existing property sub-limit to the value of the works, not to the value of the building. If the works are worth EUR 250,000 while the reinstatement cost of the building is EUR 1.4 million, the sub-limit may turn out to be EUR 250,000. That is a layer, not full cover for the building.
That is not a defect if you know it in advance and choose it deliberately. The problem arises when the sub-limit is assumed to be sufficient without being compared with the loss that could realistically occur.
Compulsory minimum limits under MK noteikumi Nr. 502
| Situation | Minimum limit of liability |
|---|---|
| Group three structures | 10% of the total value of the contracts, but not less than EUR 150,000 |
| Group two structures | 10% of the total value of the contracts, but not less than EUR 15,000 |
| Contract of a contractor engaged by a self-builder | EUR 7,500 until the structure is accepted for operation |
| After the structure has been accepted for operation | The minimum limit is reduced by 50% |
| Maximum deductible | May not exceed 20% of the limit of liability |
| Minimum term of the contract | The construction period and the guarantee period; the insurance term for the guarantee period – up to five years |
These are minimums, not a recommendation. On a site with genuinely dense surrounding development or a high degree of risk in the works, the minimum limit can be exhausted by a single event.
What to check before the works start
- Whether the general liability quote has a separate line for participants in the construction process, and whether it carries a limit
- Whether the insurer's policy wording contains an exclusion for the property being worked on, and how broadly it is drafted
- Whether the general liability limit is proportionate to the surrounding development, not just to the regulatory minimum
- Whether the project has a CAR policy and whether it includes an existing property section
- What the existing property sub-limit in the CAR policy is
- Whether works already completed fall within the CAR cover – this has to be clarified separately
- Whether the policy periods also cover the guarantee period
In short
General liability protects the contractor against other people's claims. CAR protects the site itself. During a renovation the client's building belongs to the second category, and no liability policy will fully take its place.
If a project has only a general liability policy and the client believes the building is insured, that is a mismatch worth clearing up before the works start, not after the event.
Insurance broker, partner at SIA EURORISK. 18+ years in insurance. About me →
Methodology and sources
The regulatory part is based on the legislation in force. The practical observations on how the exclusions work are Kristaps Račko's professional observations from broker practice; no data on specific clients or policies has been used in the article. The actual cover always depends on the policy wording.
- MK noteikumi Nr. 502 "Noteikumi par būvspeciālistu un būvdarbu veicēju civiltiesiskās atbildības obligāto apdrošināšanu" (Cabinet of Ministers regulations on compulsory civil liability insurance for construction specialists and contractors) – paragraphs 15, 22, 23, 25, 27, 28, 30, 31, 33 and 34. Verified 17.08.2026.
- Būvniecības likums (the Construction Law) – Section 5, paragraph 1, clause 9, on the basis of which those regulations were issued
- Kristaps Račko's broker practice (18+ years) – review of insurers' policy wordings and quotes
This article provides general information and is not individual insurance advice. The actual cover depends on the chosen insurer's wording and the special conditions of the policy.