Insurance coverage for burglary and theft events
Mar 25, 2018
Article by Itzik Simon
Although your contractor’s insurance policy covers cases of burglary and sometimes theft, the issue is not always “black and white,” and there are many factors to consider carefully.
Contractor’s works insurance for burglary/theft is optional (not mandatory) and relatively inexpensive. In light of the surge in break-ins, thefts, and deliberate damage that characterize the construction industry, I found it important to review the subject and highlight the key points you should know when structuring an optimal contractor’s insurance policy.
Like all insurance coverage, this too comes with conditions and requirements—each with varying levels of strictness.
Key Points and Coverage Limitations for Burglary/Theft in Contractor’s Works Insurance
Remember, a contractor’s works policy deals with “big-ticket” items and is primarily intended to insure the project as a whole. Therefore:
Coverage limited to the client’s or main contractor’s equipment only – Most insurers limit theft/burglary coverage to small tools and equipment belonging only to the client or main contractor.
Insurance sum – Usually equal to the full value of the works, but coverage for small equipment is limited to the sum specified in the policy, typically based on “first loss” (without calculating underinsurance).
Coverage limited to small equipment – The policy does not cover items valued over 30,000 NIS (sometimes extendable to 40–50,000 NIS or more).
Separate insurance for high-value equipment – Equipment such as cranes, compactors, tractors, freight elevators, and other heavy machinery requires separate policies, as their value exceeds the “per-item maximum” mentioned above.
Actual value for tools – Compensation for tools is based on their actual value, deducting wear and tear since the items are used and not new.
Replacement value for construction inputs – Unlike tools, coverage for construction inputs (materials) is provided at full replacement value, without deduction for wear and tear.
Deductible – The standard deductible for burglary/theft claims across insurers is 20% of the damage value, with a minimum of 20,000 NIS. In some cases, a maximum deductible may also be specified.
As mentioned, burglary/theft insurance within a contractor’s works policy is optional. Considering the coverage limitations and insurer requirements described above, it may seem that including burglary/theft coverage in your policy is pointless.
However, this is not the case—there are limitations, but there are also solutions, which we will discuss below.
Article by Itzick Simon
Although your contractors' insurance policy covers cases of burglary and sometimes theft, it turns out that the issue is not "black and white" and there are many influencing factors that must be taken into account.
Contractors all risks insurance against burglary/theft is optional (not mandatory) and low cost. Given the prevalence of burglaries, thefts, and malicious damage that characterize the construction industry, I found it appropriate to review the issue and highlight the points that are important to know when formulating a contractor's insurance policy with optimal coverage for you.
As with any insurance coverage, here too, there are conditions and requirements for the insurance contract – each with a different degree of severity.
Highlights and limitations of insurance coverage for burglary/theft in the contractor's insurance policy
Remember? The contractor's work policy is a policy that deals with 'big' things and its main purpose is to insure the project as a whole. Therefore:
1. Limiting coverage to the equipment of the client and/or the main contractor only - Most insurance companies limit insurance coverage for theft/burglary damage to work tools and light equipment - to the client or the main contractor only.
2. The amount of insurance is usually equal to the full amount of the work, but coverage for light equipment is limited to the amount specified in the policy, usually on a "first damage" basis (without calculating "underinsurance").
3. Limiting insurance to light equipment only - coverage does not apply to any item worth over NIS 30,000 (can be extended to NIS 40-50 thousand and sometimes more).
4. Independent insurance for equipment whose value exceeds - installation equipment and construction tools such as: crane, press, tractor, freight elevator, etc. - require separate policies and are not included in the insurance coverage, since they exceed the "maximum for a single item", as stated above.
5. Real value of tools - compensation for tools is given according to their real value (deducting wear and tear from the new price - since it is an old and used item).
6. Replacement value for construction inputs - unlike work tools, where coverage is based on real value (minus wear and tear), coverage for all construction inputs is full coverage based on replacement value.
7. Deductible rate - The deductible accepted for burglary/theft damages by all insurance companies is 20% of the value of the damage and no less than 20,000 NIS. Sometimes a maximum amount is also recorded - depending on the case.
As mentioned, burglary/theft insurance as part of a contractors' insurance policy is optional. In light of all of the above, and especially regarding the coverage restrictions and insurance company requirements that we will present below, it seems as if there is no point in including a burglary/theft clause in your contractor's policy.
But that is not the case, as we will show below - there are limitations but there are also solutions.
Prerequisites for insurance coverage
Among the policies for insurance of contracting works, issued by insurance companies, it is possible to distinguish different degrees of prerequisite requirements for insurance coverage (or as defined today: risk mitigation measures), although the main feature in them is the requirement to have a guard posted on site at all times when the site is unmanned.
Responsibility for the quality of storage
When the requirement in the policy is to post a guard on behalf of a security company, simply fulfilling the contract with the security company is sufficient to be obligated to fulfill the condition. If a break-in occurs due to the security company's negligence, then the insurance company will have the right to sue the security company, but the customer will be entitled to receive compensation for his damages.
The essence of the custody agreement
In order for the agreement with the security company to actually have acceptable issues in terms of the terms of the policy, it goes without saying that the agreement must be for the provision of security services on site, and not an agreement for the provision of "tour services."
This clarification is not accidental: in recent years, against the backdrop of strict adherence to wage laws and the enforcement of full social rights for employees - many security companies have been signing contracts with clients for: "security and patrol" - and in the details of the services there is no definition regarding the posting of a guard - but rather patrol services (even though in fact a guard is posted on site).
Such a contract is not considered to fulfill the requirement in the policy as stated and may forfeit the insurance coverage from the policy, in which case it is likely that the insurance company will reject the claim.
Types of conditions for insurance coverage for burglary/theft according to the insurance company's policy
A strict requirement from some insurance companies - posting a guard from a security company, under the age of 55, armed with a licensed weapon, equipped with emergency communication means for the hotline. This is a far-reaching requirement, which is inconsistent with the reality, nature, and findings of the security companies' activities.
A lenient requirement from some insurance companies - posting a guard on behalf of a security company, equipped with communication equipment, who is solely engaged in security work.
Requirement according to the terms of BIT - 2013 - Exclusion-6 in the exclusions to insurance coverage in Chapter A of the aforementioned contractor's policy defines two options for canceling the exclusion for burglary/theft coverage: Existence of a contract to provide security services at the insured's site - cancels the exclusion and the insured fulfills his obligation.
Or alternatively - placing a hired guard on behalf of the insured - in such a case, the responsibility for the actual maintenance and quality of the guard - applies to the insured himself.
The reality on the ground - factors of crime and the helplessness of law enforcement agencies
The takeover of security services at construction sites by criminal elements and crime families is unfortunately a common sight, which law enforcement authorities have refrained from dealing with with a strong hand - and in general.
Recently, in an attempt to eradicate the phenomenon, the Knesset Constitution Committee approved an order adding construction sites to the list of types of security that workers must obtain a license for.
Including infrastructure and construction sites on the list will allow for individual examination of those engaged in security services there, including a criminal background check, so as to prevent the employment of criminal elements as security guards at the sites and will allow for reducing the involvement of criminal organizations in this activity.
The amendment was made following a recommendation by the Integrated Economic Enforcement Team at the State Attorney's Office in cooperation with the Israel Police, which pointed out the existence of extensive criminal activity around construction sites. This includes, among other things, the forcing of security services on the sites by criminal elements, while collecting protection fees and using threats and extortion. In the next stage, the site becomes a base for criminal activity against nearby sites and residential buildings, and thus "zones of control" are created - and we all know this.
Insurance Coverage for Contractor’s Works: Security Requirements and Practical Challenges
Among the various contractor’s works insurance policies issued by insurance companies, there are differing levels of preconditions for coverage (currently referred to as “risk mitigation measures”). The primary common requirement is the placement of a security guard at the site whenever the site is unoccupied.
Responsibility for the Quality of Security
When a policy requires a guard provided by a security company, simply having a valid contract with the security company generally fulfills the policy condition. If a theft or break-in occurs due to the security company’s negligence, the insurer has the right to seek recourse from the security company. Nevertheless, the policyholder remains entitled to receive compensation for the damage suffered.
Nature of the Security Agreement
For a contract with a security company to be recognized as valid under the policy, it must specifically cover security services at the site, not merely “patrol services.”
This distinction is significant. In recent years, due to stricter enforcement of labor laws and full provision of employee rights, many security companies have required clients to sign contracts for “security and patrol.” The detailed description often does not explicitly include the stationing of a guard, even though a guard is physically present at the site.
Such a contract does not satisfy the policy requirement and may result in the insurer denying the claim, effectively nullifying coverage.
Types of Coverage Requirements for Theft/Break-in According to Insurer Policy
Strict requirement (some insurers): A security guard from a security company, under 55 years old, armed with a licensed weapon, and equipped with a distress communication device connected to a control center. This requirement is often unrealistic and does not align with the nature and availability of security personnel.
Moderate requirement (other insurers): A security guard from a security company, equipped with communication tools, engaged solely in security duties.
Requirement under BIT 2013 – Clause 6: Two options to satisfy the coverage condition for theft/break-in:
Maintain a contract for providing security services at the insured site—this cancels the clause and fulfills the policyholder’s obligation.
Deploy an employee guard hired by the policyholder—in this case, the responsibility for the guard’s presence and performance rests with the policyholder.
Practical Reality: Criminal Elements and Law Enforcement Challenges
Control of construction site security services by criminal elements and crime families has, unfortunately, become common, with law enforcement failing to intervene effectively.
Recently, in an effort to address this issue, the Knesset Constitution Committee approved a regulation adding construction sites to the list of locations where security personnel must be licensed.
Including infrastructure and construction sites in this list allows for individual checks of security personnel, including criminal background checks, helping prevent the employment of criminals as site guards and reducing the involvement of organized crime in these operations.
This amendment followed recommendations from the State Prosecution’s Joint Economic Enforcement Team, in cooperation with the Israel Police, which highlighted widespread criminal activity around construction sites. This includes the coercion of security services, collection of protection fees, and use of threats and extortion. Over time, a site can become a base for criminal activity affecting neighboring sites and residential areas, creating “control zones”—a phenomenon familiar to the public.
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