# CAR/EAR and construction insurance claims in Estonia

URL: https://insurancelawestonia.ee/guides/car-ear-construction-claims/
Author: Dr Olavi-Jüri Luik, Partner, Head of Insurance Law, attorney at law (Advokaadibüroo WIDEN OÜ)
Last updated: 2026-11-04

> Contractors' and erection all risks claims in Estonia: insured parties, defects and LEG clauses, contractor liability, time limits, recovery and disputes.

Construction and engineering projects in Estonia, from residential developments in Tallinn to energy, defence and infrastructure projects, are commonly insured under contractors' all risks (CAR) or erection all risks (EAR) policies, often on London or German wordings and sometimes as part of an international programme. This guide explains how Estonian law affects CAR/EAR claims: who is insured, how defects are treated, which time limits apply and how insurers recover from contractors and designers.

## 1. The policy structure

A typical CAR/EAR policy covers:

- **Section I (material damage)**: physical loss of or damage to the contract works, temporary works, materials and sometimes existing property;
- **Section II (third-party liability)**: liability of the insured parties for injury or property damage to third parties arising from the works;
- **extensions**: delay in start-up (DSU / advance loss of profits), maintenance period cover, design defect extensions (LEG 1–3 or similar).

Under Estonian law, Section I is indemnity insurance (property insurance) and Section II is liability insurance; different statutory rules apply to each (Law of Obligations Act (*võlaõigusseadus*, VÕS) §§ 476–504 and §§ 510–519).[^1] Loss of profit, including DSU, is covered only if expressly agreed (§ 476).

## 2. Who is insured?

CAR policies usually name the employer, the main contractor and subcontractors (and sometimes designers and lenders) as insured parties. Estonian law treats this as insurance for the account of third parties (VÕS § 463): each insured person may claim performance, but disposition of the rights generally lies with the policyholder, and the knowledge and conduct of an insured person are attributed to the policyholder for that person's interest (§ 465).[^1]

**Waiver of subrogation between insured parties.** Because the insurer acquires the insured's claims against third parties by subrogation (§ 492), CAR policies usually waive subrogation against other insured parties. The waiver should be clear; otherwise the insurer may attempt to recover from a subcontractor who is also an insured, which defeats the purpose of a project policy.

## 3. Defects, workmanship and LEG clauses

The central coverage question in CAR claims is the distinction between **damage** (covered) and **defect** (generally excluded, with gradations under LEG or DE clauses). Estonian law has no special statutory rule on these clauses. They are standard terms and are interpreted in accordance with VÕS § 39: unclear terms are construed against the insurer, and an Estonian court will interpret technical exclusions in the light of their purpose. Practical points:

- the insurer must prove the facts of the exclusion (for example that the loss consists of the cost of rectifying a defect rather than resulting damage);
- an exclusion that in substance makes cover depend on the contractor's conduct (for example "failure to follow the manufacturer's installation instructions") may be treated as an obligation subject to fault and causation tests (VÕS § 452 lg 2) and the proportionality case law of the Supreme Court;[^2]
- expert evidence on causation is decisive; the insurer's and insured's experts should be instructed jointly where possible, and any agreed expert determination must comply with VÕS § 490.

## 4. Contractor and designer liability

Recovery and Section II claims depend on the liability rules of construction law:

- **Contract for work.** Under a contract for work (*töövõtuleping*), the contractor must deliver work that conforms to the contract (VÕS §§ 635, 641) and is liable for non-conformity (§ 642). The customer must notify non-conformity within a reasonable time after learning or having to learn of it (§ 644).[^1]
- **Limitation.** Claims arising from transactions expire in three years; claims under a contract for work arising from defects of a building expire in five years (General Part of the Civil Code Act (*tsiviilseadustiku üldosa seadus*, TsÜS) § 146 lg 1–2).[^3]
- **Tort.** Third parties may claim in tort (VÕS § 1043) and, for damage from buildings or works, under other strict liability rules where applicable.

## 5. Notification and site duties

CAR policies often contain detailed obligations: notification within a short period, keeping damaged parts for inspection, site security, flood and fire precautions, testing procedures. Under Estonian law:

- late notification reduces the indemnity by the insurer's prejudice; only intentional breach releases the insurer entirely (VÕS § 449);
- altering the damaged property before inspection is permitted where necessary to mitigate the loss or in the public interest (§ 488 lg 2), which is common on active sites;
- pre-loss safety obligations are subject to fault and causation (§ 452 lg 2), and a contractual release must be backed by cancellation within one month (§ 470).

## 6. Quantum

The insured value of contract works is usually the contract price. Average (under-insurance) applies under VÕS § 482 unless waived; contract values that increase during the project should be declared. Reinstatement cost is the standard basis; betterment deductions require justification. Mitigation costs (for example emergency works to prevent collapse) are recoverable under § 491 even if unsuccessful.

## 7. Delay in start-up

DSU claims raise questions of indemnity period, waiting periods and causation (whether the delay was caused by insured physical damage or by other factors such as supply chain problems). Estonian courts will interpret ambiguous DSU wording against the insurer; documentation of the critical path is essential.

## 8. Disputes

Construction disputes are frequently arbitrated, often before the Arbitration Court of the Estonian Chamber of Commerce and Industry. The insurer's subrogated recovery may be bound by the arbitration clause in the construction contract. See [arbitration of insurance disputes](https://insurancelawestonia.ee/guides/arbitration-insurance-disputes-estonia).

## 9. LEG and DE clauses in figures

A defect is a condition; damage is a change in the physical condition of the property. The English Court of Appeal has held that the mere existence of a defect is not damage, and that damage is a physical change impairing value or usefulness even if repairable.[^4] No Estonian Supreme Court decision on the CAR concept of damage or on LEG clauses has been identified, so an Estonian dispute turns on the policy wording, read under VÕS § 29(5) (trade meaning and usage, which the insurer must prove) and § 39(1) (contra proferentem).[^1]

Illustration (EUR thousands): cost of rectifying the defect immediately before the loss 60; reinstating the failed defective element 100; other damaged works 300; betterment 20. LEG 1/DE1 pays 0; DE3 pays 300 less deductible; LEG 2 pays (100 + 300) − 60 = 340 less deductible; LEG 3 pays 400 less deductible (betterment excluded). With a deductible of 40 under LEG 2 and 200 under LEG 3, the narrower clause pays more (300 against 200). Estonian-language CAR wordings frequently exclude faulty design entirely (LEG 1 level) while treating faulty materials and workmanship along DE3/DE4 lines, so design and workmanship defects must be analysed separately.

## 10. Practical Estonian points

- **Maintenance cover.** A narrow maintenance clause covers only damage caused by the contractor during maintenance visits; extended maintenance also covers damage manifesting in the maintenance period that was caused on site during construction. A two- to five-year contractual defects period is not matched by a 12-month narrow maintenance cover; rectifying defects is the contractor's obligation and is secured by a guarantee, not by CAR.
- **Under-insurance.** The sum insured must equal the total value of the insured works on the policy's valuation basis; under-insurance reduces the indemnity proportionally (VÕS § 482).[^1]
- **Waiver of rights.** If the policyholder waives its claim against a third party, the insurer is released to the extent it could have recovered under that claim (VÕS § 492(2)); this rule is not semi-mandatory, so a waiver in the construction contract should be cleared with the insurer or replaced by a co-insurance and waiver-of-subrogation structure.[^1]
- **Building Code 2026.** The amendment of the Building Code (ehitusseadustik, EhS) in force from 1 August 2026 tightened owner's supervision, design (including known effects of climate change) and as-built documentation, but did not introduce compulsory liability insurance; the Code does not mention insurance.[^5]
- **Limitation.** A claim for a building defect under a works contract (including a design contract) is time-barred after five years from completion or acceptance; for a latent design defect, relying on limitation before five years have passed from completion of the building may be contrary to good faith.[^3][^6]
- **Third-party notice.** Filing an application to join a third party suspends limitation for the recourse claim from filing, if the application is served.[^6]

Further detail in Estonian: [LEG-klauslid](https://kindlustusoigus.ee/kindlustusliigid/kahjukindlustus/ehituskindlustus/leg-klauslid-ja-ehitusvead/), [CAR-kindlustuse vaidlused](https://kindlustusoigus.ee/kindlustusliigid/kahjukindlustus/ehituskindlustus/car-kindlustuse-vaidlused/) and [ehitusosaliste vastutus ja aegumine](https://kindlustusoigus.ee/kindlustusliigid/kahjukindlustus/ehituskindlustus/ehitusosaliste-vastutus-ja-aegumine/).

## Related pages

- [Insurable interest, insurable value and sums insured](https://insurancelawestonia.ee/estonian-insurance-contract-law/insurable-interest-and-sums-insured)
- [Exclusions vs obligations](https://insurancelawestonia.ee/estonian-insurance-contract-law/exclusions-vs-obligations)
- [Subrogation and recovery services](https://insurancelawestonia.ee/services-for-insurers/subrogation-and-recovery)
- [Professional indemnity in Estonia](https://insurancelawestonia.ee/guides/professional-indemnity-estonia)
- [Supreme Court: insurable value and indemnity](https://insurancelawestonia.ee/supreme-court/indemnity-insurable-value-and-calculation)

## References

[^1]: Law of Obligations Act (võlaõigusseadus, VÕS) §§ 39, 449, 452, 463, 465, 470, 476–504, 482, 488, 490–492, 510–519, 635, 641–642, 644, 1043. RT I, 20.06.2026, 18 (in force 01.09.2026). <https://www.riigiteataja.ee/akt/V%C3%95S>; English: <https://www.riigiteataja.ee/en/eli/527122023005/consolide/current>.
[^2]: RKTKo 28.06.2024, 2-22-2313/65, p 13, 15–17. <https://www.riigikohus.ee/et/lahendid?asjaNr=2-22-2313/65>.
[^3]: General Part of the Civil Code Act (tsiviilseadustiku üldosa seadus, TsÜS) § 146. RT I, 31.12.2024, 48 (in force 01.01.2025). <https://www.riigiteataja.ee/akt/Ts%C3%9CS>; English: <https://www.riigiteataja.ee/en/akt/523012025003>.
[^4]: Seele Austria GmbH & Co KG v Tokio Marine Europe Insurance Ltd [2008] EWCA Civ 441, para 42. – https://caselaw.nationalarchives.gov.uk/ewca/civ/2008/441; Sky UK Ltd & Mace Ltd v Riverstone Managing Agency Ltd [2024] EWCA Civ 1567, paras 107–108. – https://caselaw.nationalarchives.gov.uk/ewca/civ/2024/1567
[^5]: Building Code (ehitusseadustik, EhS) §§ 9, 14, 15, 20 (RT I, 11.07.2026, 33). – https://www.riigiteataja.ee/akt/EhS
[^6]: RKTKo 25.03.2020, 2-16-14644/50, paras 13–14, 16, 19. – https://rikos.rik.ee/LahendiOtsingEriVaade?asjaNr=2-16-14644/50