Cheng Xianzheng Fa [2019] No. 413

The "Trial Implementation Measures for the Potential Quality Defect Insurance of Residential Construction Projects in Chengdu City" has been approved by the municipal government. It is now issued to you for implementation in accordance with actual circumstances.

Chengdu Municipal Housing and Urban-Rural Construction Administration

Chengdu Local Financial Supervision Bureau

December 31, 2019

Chengdu Residential Construction Quality Potential Defect Insurance Pilot Implementation Measures

Chapter 1: General Provisions

In accordance with the spirit of the Ministry of Housing and Urban-Rural Development's "Notice on the Pilot Implementation of the Quality and Safety Enhancement Action for Construction Quality" (No. 169 JZ), Chengdu City, as a pilot city for engineering quality insurance, has launched a pilot program for residential engineering quality potential defects insurance. By introducing an engineering risk protection mechanism, strengthening engineering quality management, and enhancing the overall level of engineering quality, the program aims to meet the people's demand for a better life. This method is formulated in accordance with laws and regulations such as the "Construction Law of the People's Republic of China," the "Insurance Law of the People's Republic of China," and the "Regulations on the Quality Management of Construction Projects."

Secondly, this approach follows the philosophy of "guiding, market operation, pioneering, and phased promotion," adhering to market-oriented principles, upholding rationality and fairness, and actively and steadily advancing the pilot work for residential construction quality insurance against potential defects.

Section 3: The term "Residential Construction Quality Potential Defect Insurance" (hereinafter referred to as "Defect Insurance") as used in this method refers to an insurance policy taken out by the construction entity, under which the insurance company, according to the terms of the insurance policy, is obligated to repair and compensate for any damage to the insured building caused by potential defects in the construction quality within the scope and term of the insurance.

This residential project encompasses both residential buildings and other structures within the same property management area.

The term "potential quality defects in engineering projects" refers to quality issues in engineering projects that do not meet the mandatory standards of construction, approved design documents, and contractual agreements due to reasons such as design, materials, and construction, and which become apparent during use.

The term "owner" referred to in this method refers to the person who holds the property rights of the house, and is the beneficiary and claimant of the insurance contract.

The fourth provision implements defect insurance in commercial residential projects invested by state-owned enterprises, encourages the implementation of defect insurance in residential projects of other investment types, and offers incentives such as credit evaluation, differentiated management in the construction process and transactional stages.

Chapter II Insurance Coverage and Liability

Article 5: The scope and duration of coverage for defect insurance are as follows:

(1) Defects in the foundation, superstructure, and exterior wall decoration include:

1. General or partial collapse; 2. Uneven settlement of the foundation exceeding the design specifications; 3. Cracks, deformations, damage, or fractures in the foundation and main structural components affecting structural safety; 4. Cracks, deformations, damage, or fractures in overhanging components such as balconies, awnings, overhangs, and air conditioning panels, affecting their safe use; 5. Deterioration or collapse of the exterior decorative surface (including insulation) affecting safe use; 6. Other quality defects in the foundation, main structural components affecting structural safety.

(II) Defects in waterproofing projects include:

1. Waterproofing issues in underground areas, roofs, bathrooms, and toilet rooms; 2. Leakage at the exterior walls (including junctions with exterior windows); 3. Leakage at other locations requiring waterproofing.

(3) Defects in renovation projects, electrical pipeline systems, water supply and drainage projects, and equipment installation projects include:

1. Construction defects: cracking and peeling; 2. Pipeline damages or failures in gas lines, water supply and drainage systems, and equipment installation projects.

(4) System defects in heating and cooling supply engineering include:

Heating and cooling systems are damaged or malfunctioning.

Item (1) has an insurance term of 10 years; Item (2) is for 5 years; Item (3) is for 2 years; and Item (4) covers 2 heating and cooling seasons. The insurance term begins two years after the project's completion and acceptance; if the legal entity of the construction or contractor is dissolved, the term starts from the date of completion and acceptance. These are all short insurance terms, and the construction unit may negotiate with the insurance company to extend the duration based on the project's specifics.

Within two years from the date of acceptance of the construction project, any quality defects shall be repaired and compensated by the construction unit. Within the scope and term of insurance as stipulated in the insurance contract, the insurance company shall fulfill the repair or compensation obligations, and reserves the right to claim from the responsible party for quality defects in engineering works. For the warranty scope and period beyond the insurance scope as stipulated in the insurance contract or after the expiration of the insurance term, relevant laws and regulations shall apply.

Article 6: Insurance companies may specify property liability compensation through additional insurance. The specific content of the additional insurance shall be agreed upon by the construction unit and the insurance company in the insurance contract.

Article 7: Quality issues caused by the owner's responsibility, third parties, or force majeure are not within the scope of insurance liability.

Chapter 3: Insurance and Underwriting

Article 8: The construction unit shall include the defect insurance fee in the preliminary budget, and clearly state that the cost is for the construction unit to pay insurance premiums as stipulated in the insurance contract. The calculation base for the defect insurance premium is the total construction cost of the building installation in the construction project. The construction unit shall explicitly state in the sales contract that the residential units insured against defects are for sale.

Article 9: Insurance terms and rate plans shall be submitted for recordation or approval to the regulatory authorities after obtaining the consent of the municipal housing and urban-rural construction administration department and the municipal financial regulatory department.

Defect insurance premiums are determined by the insurance company based on the reference range set in accordance with the municipal housing and urban administrative authorities and the financial regulatory authorities, considering the specifics of the insurance project. They are agreed upon with the policyholder and specifically detailed in the insurance contract.

Article 10: Defect insurance is underwritten in a single insurance or co-insurance entity manner.

The Joint Insurance Association is composed of the lead insurance company and at least two co-insurance companies, implementing unified insurance clauses, uniform insurance rates, unified claims services, and a unified information platform.

The housing and urban-rural development administrative authorities have selected insurance companies through open bidding, which possess strong payment capabilities, high service efficiency, strong professional skills, and good credit, for commodity residential construction units of state-owned enterprises to choose from. Other residential construction units of investment nature can independently decide whether to choose the insurance companies bid by the housing and urban-rural development administrative authorities.

Article 11: The entity constructing a defect insurance policy should enter into a defect insurance contract with an insurance company and pay the insurance premium as agreed upon, prior to the deadline for obtaining construction permit procedures.

Article 12: Insurance companies shall formulate an implementation plan for the assessment of engineering quality risk, insurance notice letters, emergency plans for insurance claims, etc., and after confirmation by the construction unit, these shall be attached as part of the insurance contract.

Article 13: A construction project shall be regarded as an insured item, with an insurance policy issued. The insurance company shall assume a compensation limit corresponding to the insurance amount stated in the policy.

Chapter 4: Risk Management

Article 14: The implementation plan for the insurance company to assess the risk of engineering quality should include specific information on the institutions and personnel responsible for conducting the assessment, the scope of implementation, the implementation plan, key milestones, key processes, as well as the specific matters requiring cooperation from the construction unit and notification obligations.

Article 15: After the insurance company and the construction unit enter into a contract for potential quality defects in engineering quality insurance, they shall also entrust a construction engineering quality risk management institution (hereinafter referred to as the risk management institution) to implement risk management. The determination of the risk management institution shall be completed after the signing of the defect insurance contract and prior to the construction unit's handling of the construction permit procedures. The insurance company shall enter into a written agency agreement with the risk management institution, legally stipulating the rights and obligations of both parties.

Risk management agencies must not have any affiliation with the participating units of the project. They are prohibited from directly or indirectly participating in the project's surveying, design, construction, supervision, and material supply activities.

Article 16: The risk management institution, in accordance with laws, regulations, construction standards, design drawings, and insurance contracts, conducts risk assessments of the quality of construction projects. It shall issue process assessment reports and final assessment reports on the quality of construction to the insurance company and the construction unit. The assessment reports should clearly state the identified quality defects and the rectification measures.

Risk management agencies should promptly submit quality issues found during process inspection and final inspection evaluations to the construction unit. The construction unit will then organize the rectification. For those who refuse to make corrections, reports will be submitted to the administrative authorities of housing and urban-rural construction according to the principle of hierarchy and territorial jurisdiction. After verification, the authorities will order the rectification.

Chapter 5 Insurance Claims and Liability

Article 17: If the owner delivers the property within or after the insurance period of the defect insurance and discovers quality defects within the insurance scope within six months from the date of delivery, the owner may submit a claim application to the insurance company or professional service institutions such as property management companies entrusted by the insurance company. Upon receiving the application, the insurance company shall assess it according to regulations and proceed with repairs or compensation based on the assessment results.

Article 18: Insurance companies shall formulate an "Emergency Response Plan for Insurance Claims," specifying the specific situations for initiating the emergency response plan, the emergency procedures, and the measures to be taken.

For claims related to basic living expenses that fall within the insurance coverage, the insurance company will initiate repairs within the contractually agreed time limit after receiving the claim application, while also conducting on-site inspections.

Article 19: Disputes between insurance companies and property owners regarding whether quality defects in construction projects fall under the scope of insurance liability can be resolved by jointly appointing a qualified third-party construction quality inspection agency for testing, and issuing a test report. If the test conclusion falls under the scope of insurance liability, the insurance company shall bear the testing costs and provide written confirmation within seven days. If it does not fall under the scope of insurance liability, the property owner shall bear the testing costs. In cases of disputes over property losses, they shall be handled according to laws, regulations, or agreements in the contract between the parties.

Article 20: The cumulative cost of insurance repairs and compensation for defects should not exceed the total insurance amount, and the repair and compensation amount for individual unit owners should not exceed the insurance amount held by individual unit owners (calculated based on the floor area of the individual unit).

Article 21: The deductible for the defect insurance is zero yuan.

Article 22: After an insurance company fulfills its obligations for repairs and liabilities under the contract, it reserves the right to pursue claims against the relevant units responsible for the quality defects of the project.

Article 23: Insurance companies shall compile the "Notice of Potential Defects in Residential Construction Quality Insurance." This notice should specify the insurance liabilities, scope, duration, and claims application process. When homeowners are handling their residence registration procedures, the construction unit should submit the "Notice of Potential Defects in Residential Construction Quality Insurance," along with the "Quality Assurance Certificate" and "User Manual," to the homeowners.

Chapter 6: Information Platform and Credit Management

Article 24: Insurance companies shall establish a defect insurance information platform. All insurance companies underwriting defect insurance shall input their underwriting information, risk management information, and claims information into the platform, maintain the data, and regularly report to the municipal housing and urban-rural construction administration authorities and the municipal financial regulatory authorities.

Article 25: The municipal housing and urban construction administrative authorities and financial regulatory authorities shall conduct credit management on insurance companies and risk management institutions. Credit records are linked to the operational behavior of insurance companies. Enterprises with poor credit ratings shall not undertake investment projects, and insurance companies with serious credit breaches will be managed according to relevant credit management measures and subject to disciplinary actions.

Chapter 7, Recitals

Article 26 – This method shall take effect upon issuance and remain in force for a period of 3 years.