Product liability insurance in the construction industry – of paramount importance

Dec 31, 2018

עם השלמת פרויקט בנייה ומסירתו, לרבות מסירה חלקית, הפוליסה שרכשתם לביטוח עבודות קבלניות פוסקת מלשמש כהגנה ביטוחית. למעט תקופת תחזוקה מוגדרת בזמן, המספקת מענה לנזקים שעלולים להיגרם במסגרת עבודות התחזוקה עצמן, אין בפוליסה הקבלנית כדי לתת כיסוי לחבות כתוצאה מליקוי בניה אשר גרם לנזק לגופו או רכושו של צד ג'. לדוגמה, אם פרצה שריפה בדירה במבנה מגורים שמסרתם בעבר, בעקבות כשל בלוח החשמל שהתברר שהיה לקוי במועד המסירה, אתם עלולים להימצא חייב בתשלום פיצויים. הן פיצויים בגין הנזקים שנגרמו לגופם של הדיירים שנפגעו מהשריפה, והן פיצויים בשל הנזקים שהאש הסבה למבנה ולתכולת הדירה/הדירות. יודגש גם כי הפיצויים הללו הינם מעבר לעלויות הנדרשות לתיקון הליקוי (לוח החשמל, במקרה זה), המהוות עילה נפרדת לחלוטין. בהעדר פוליסה אפקטיבית לחבות מוצר, תתמודדו עם התביעה מכיסכם. גם מבחינת הוצאות משפט וגם בתשלום פיצויים היכולים לטפס לכדי סכומים משמעותיים. בפרט בכל הנוגע לנזקי גוף חמורים ובלתי הפיכים ו/או מוות. זאת ועוד, במידה שהדייר או הדיירים היו מבוטחים באופן עצמאי בפוליסות ביטוח משלהם (למשל, פוליסת ביטוח מבנה ותכולה), אתם חשופים לתביעת שיבוב מחברת הביטוח של הדייר/הדיירים ובהיעדר פוליסת ביטוח חבות מוצר מצדכם - תיאלצו לממן הוצאות הגנה משפטית ופיצוי לניזוקים- מכיסכם.

Upon completion and delivery of a construction project, including partial delivery, the policy you purchased for contractor work insurance ceases to provide insurance protection. With the exception of a defined maintenance period, which provides a response to damages that may occur as part of the maintenance work itself, the contractor's policy does not provide coverage for liability resulting from a construction defect that caused damage to the person or property of a third party.

For example, if a fire broke out in an apartment in a residential building that you previously delivered, following a failure in the electrical panel that turned out to be defective at the time of delivery, you may be liable to pay compensation. Both compensation for the damages caused to the bodies of the residents who were injured by the fire, and compensation for the damages that the fire caused to the structure and the contents of the apartment/apartments. It should also be emphasized that this compensation is in addition to the costs required to repair the defect (the electrical panel, in this case), which constitute a completely separate cause of action.
In the absence of an effective product liability policy, you will face the claim out of pocket. Both in terms of legal expenses and in paying compensation that can amount to significant amounts. Especially when it comes to serious and irreversible bodily harm and/or death.
Furthermore, if the tenant or tenants were independently insured with their own insurance policies (for example, a building and contents insurance policy), you are exposed to a subrogation claim from the tenant/tenants' insurance company, and in the absence of a product liability insurance policy on your part - you will be forced to finance legal defense expenses and compensation for the injured parties - out of your own pocket.

Source of Liability – Product Liability Law

The date of the verdict – March 2019.

מועד מתן פסק הדין – מרץ 2019.

A product liability policy covers compensation for bodily injury or property damage caused to a third party after the building has left the possession of the contractor (insured) and it also applies to parts whose construction has been completed and delivered for use.

Two cumulative conditions allow the policy to be activated on the day of the order: physical damage to property or body (1) that was the result of an unexpected accident (2).
What about the maintenance period in the contractor's policy? As noted above, the contractor's work policy covers the maintenance period only for damages that will be caused as a result of the maintenance work itself.

Although there are additional elements in the definition of the maintenance period in the contractor's policy that may provide additional protection, the contractor or developer should not rely on them. The fine print plays too important a role here, and the chance of being reimbursed from the contractor's policy in such cases is small.
It should also be noted that the basis of coverage in a product liability policy is based on the "date of filing the claim." That is, if a claim is filed against the contractor based on product liability, the coverage will be valid only if the policy is valid on the date the claim is filed, and is also included in the retroactive period for coverage, which is set forth therein. Exceeding the limits of the above provision nullifies the right to insurance coverage.

What does the policy cover?

When it comes to retroactive coverage, it should be understood that this is not a trivial matter. Insurance companies are not averse to providing retroactive coverage for many years, and they will not provide insurance coverage to contractors and developers who have operated for decades without a valid product liability policy, except in very exceptional cases.

The recommendation is (of course) - "One hour earlier is better." It is advisable for the contractor/entrepreneur to purchase a comprehensive product liability policy upon commencement of his activity. He must maintain the insurance continuity of the policy when switching between insurers, while ensuring appropriate retroactive coverage.

An important issue to emphasize regarding retroactive coverage in a policy is knowledge or lack of knowledge of the insured events. According to the Supreme Court's ruling, policies that provide retroactive coverage only apply to insured events that neither party knew about at the time of entering into the contract.

As stated, "The retroactive principle therefore concerns the date of the creation of the cause, but not the date of the certain and obvious realization of the risk, and there is no reason to allow the insured to obtain retroactive coverage for damage that had already occurred at the time of the conclusion of the contract, and the insured already knew about it" (AA 1530/02, emphasis not in the original).

Not only to the past but also to the future

The recognition of the importance of a product liability policy does not, of course, only concern the past, but – like all insurance in the construction sector – has fateful implications for the future. Defects in a building may cause accidents (sudden and unexpected events) even after many years, and the contractor's liability is long-term in the broadest sense of the word. This is a liability that is often derived from the Sales Law (apartments), and which extends over 10-20 years or more.