OGH on Property Damage and Contamination

Jun 4, 2026 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) was tasked with evaluating the differentiation between insured property damage and an uninsured construction defect within the context of construction insurance. This matter originated from a construction project where a groundwater system, initially installed, was subsequently converted to a geothermal system as a consequence of technical issues.

Following commissioning, considerable malfunctions arose as a result of silting and blockages caused by the composition of the groundwater. Despite comprehensive cleaning efforts, consistent operation could not be established, necessitating a system modification.

The policyholder submitted a claim under the construction insurance policy, alleging property damage. The insurer, conversely, maintained that there was no compensable damage because the object itself had not sustained any harm.

Distinction between damage and defect

The OGH upholds its previous case law that a defect in performance exists if an object does not possess the agreed quality from the outset due to its design or execution. Damage, by contrast, requires a subsequent, external influence that impairs the item’s usability.

Contamination as property damage

The Court underscored that damage is not restricted to typical physical impairment. Persistent silting or contamination may also be considered damage if it substantially diminishes functionality.

In the present case, the recurring deposits, which were attributable to the natural composition of the groundwater, led to significant operational disruptions and rendered the plant effectively unusable within the original system. This constituted a sufficient physical impact on the item, which significantly impaired its usability and thus constituted damage.

Complete loss

Furthermore, the OGH affirmed that a total loss had occurred, as restoration to the original condition was only possible through a fundamental technical overhaul. A mere repair within the existing system was not sufficient to restore the plant to its intended operation.

OGH 7 Ob 153/25p (25 February 2026)