The dramatic increase in self-participations in contractor work insurance
Jan 31, 2022
What are the implications of engaging with contractors and subcontractors?
By: Itzick Simon
In the past two years, there have been dramatic changes in the global construction insurance market that directly affect the Israeli insurance market. Mainly due to strategic decisions among overseas reinsurers, which are in fact the international insurance companies that provide Israeli insurance companies with economic and financial backing.
In a nutshell, we are talking about the huge losses suffered by international insurers starting in 2017 and reaching a peak loss in 2019 that led to a recalculation of the trajectory. Many losses resulted from global climate events, so not everything is related to the Israeli construction market, but the butterfly effect nevertheless reached the Holy Land.
What are the implications of engaging with contractors and subcontractors?
By: Itzick Simon
In the past two years, there have been dramatic changes in the global construction insurance market that directly affect the Israeli insurance market. Mainly due to strategic decisions among overseas reinsurers, which are in fact the international insurance companies that provide Israeli insurance companies with economic and financial backing.
In a nutshell, we are talking about the huge losses suffered by international insurers starting in 2017 and reaching a peak loss in 2019 that led to a recalculation of the trajectory. Many losses resulted from global climate events, so not everything is related to the Israeli construction market, but the butterfly effect nevertheless reached the Holy Land.
Implications for the insurance market
The implications for the Israeli insurance market also stem from unique aspects of the construction market in Israel. Starting from the possibility that the National Insurance Institute may return with subrogation claims for compensation paid to workers' compensation victims, through social compensation rulings that bring many tort claims to huge sums of millions of shekels, and ending with long periods of exposure to tort claims, what is known as the "long tail" of liabilities.
In addition to the increase in prices, deductibles in contractor work insurance policies in Israel have also skyrocketed and changed beyond recognition as a result of these processes, particularly with regard to the liability of main contractors and developers for compensation following work accidents involving subcontractors.
As an insurance agency that has been working in the field of contractors' insurance and construction company insurance in a focused manner for over 30 years, we are well aware of the trends. In this article, I will discuss the scope of the phenomenon and outline some possible "lines of defense."
The implications for the Israeli insurance market also stem from unique aspects of the construction market in Israel. Starting from the possibility that the National Insurance Institute may return with subrogation claims for compensation paid to workers' compensation victims, through social compensation rulings that bring many tort claims to huge sums of millions of shekels, and ending with long periods of exposure to tort claims, what is known as the "long tail" of liabilities.
In addition to the increase in prices, deductibles in contractor work insurance policies in Israel have also skyrocketed and changed beyond recognition as a result of these processes, particularly with regard to the liability of main contractors and developers for compensation following work accidents involving subcontractors.
As an insurance agency that has been working in the field of
Until recently, contractors and developers did not give much thought to the issue of deductibles in the event of accidents, and in particular accidents involving subcontractors. This is because the deductible amounts were not significant and were at "definitely reasonable" levels. Approximately 10-20 thousand shekels in third-party and employer liability claims, and approximately 20-40 thousand shekels for National Insurance Institute claims.
However, following changes in the insurance industry and the new approach of reinsurers, the numbers today are completely different. For example, the deductible in the case of a National Insurance Institute substitution claim is currently 100,000 shekels at the most "considerate" insurance company and can climb to 250,000 shekels and more at many other insurance companies. In insurance for large or complex projects, in which reinsurers are directly involved, the amount can even reach 500,000 shekels.
In addition, the employee himself has the right to file a civil tort claim (for amounts paid in excess of the compensation he is entitled to receive from National Insurance), and this is a common phenomenon in the construction industry. In such a case, the deductible in the employers' liability chapter is estimated at between NIS 20,000 and NIS 50,000. Add to this a deductible of between NIS 50,000 and NIS 100,000 in the third-party chapter and the message is clear. The minimum deductible for a single accident on site can start at NIS 170,000 and climb higher and higher.
Deductible in a contractor's policy – no longer a matter of 20,000 shekels at most
In light of the high numbers, it is important for contractors and developers to verify the details in their contract agreements with subcontractors and suppliers. At our agency, which has been in the field for over three decades, we unequivocally recommend including clear clauses in contract agreements regarding the offset of deductibles directly from payments to the contractor.
For example, in our clients' contracts with subcontractors, we prepare an appendix in which it is specified in advance that the subcontractor will bear the deductible amounts following an accident caused by his act or omission or that of an employee on his behalf. It is highly advisable to stipulate in the aforementioned appendix that the deductible amount will be deducted in advance from the current payments due to the subcontractor for his work, to ensure that the amount will indeed be paid.
Please note: Experience shows that oftentimes, contract agreements with subcontractors do not include explicit reference to the issue of deductibles when activating insurance in the event of an accident involving an employee or a third party.
This is a mistake , and here is an example - we recently encountered a case in which an employee of a subcontractor was injured on a construction site and the main contractor was ordered to pay approximately 70% of the compensation awarded to him, which was estimated at hundreds of thousands of shekels. The main contractor's liability for the employee's damages arose from several reasons:
First, Israeli law states that contracting with subcontractors does not eliminate the main contractor's responsibility for the safety and well-being of workers on site. In this specific case, it was also proven that the main contractor did not appoint a foreman (as he is required to do according to occupational safety regulations) and that no safety briefings were provided on site.
Such a case demonstrates that it is not always possible to "load" responsibility onto the subcontractor. The main contractor is under an obligation to comply with safety regulations and operate a construction site in a perfect manner, otherwise how can he claim that responsibility falls on the subcontractor and how can he demand that he pay the deductible amounts?
Offset deductible amounts against subcontractors?
The increase in deductibles due to changes in the construction insurance industry is only part of the insurance puzzle when working with subcontractors. When the contractor/developer contracts with subcontractors, he must ascertain that they are self-insured with relevant supplementary policies as appropriate.
For example, auto and personal accident insurance, property and work tool insurance, professional liability and product liability insurance, etc.
Additional insurance highlights
Contractors' insurance, if purchased professionally, provides an adequate envelope of coverage for event controls. However, even if you have the best policy and even if you work only with responsible and experienced subcontractors, the principle is that you should take precautions before the blow.
When it comes to worker safety, things are said from mild to severe. Remember that the levels of liability in Israeli law include not only the direct employer (subcontractor) but also the construction operator, the person ordering the work, etc.
It should be emphasized that even if you acted impeccably, the mere filing of the lawsuit is a financial and commercial burden, even if it is ultimately rejected in everything that concerns you.
Safety and responsibility for the well-being of employees, maximum attention
Only careful insurance and professional contractual agreements can provide a solution.
Especially when personal injury claims in Israel frequently climb to huge amounts as a result of court rulings recognizing categories of damage such as loss of future earning capacity or the loss of lost years (categories of damage that embody compensation reaching millions of shekels in fatal accidents in which a person is killed, even if it is the simplest act).
Did the court accept the claim and award compensation?
To conclude
We should note that in light of the statute of limitations in tort law, which allows claims to be filed even many years after the accident, it is important not to take the issue of deductibles lightly. Be aware that you may be required to pay a significant deductible in the event of an accident involving a subcontractor's employee, even if the claim is filed many years later, and be prepared for this financially.
It is advisable to verify one hour in advance that a performance contract with a negligent contractor allows for the expected deductible amount to be offset and kept in a deposit for payment after the claim is settled.
We should note that in light of the statute of limitations in tort law, which allows claims to be filed even many years after the accident, it is important not to take the issue of deductibles lightly. Be aware that you may be required to pay a significant deductible in the event of an accident involving a subcontractor's employee, even if the claim is filed many years later, and be prepared for this financially.
It is advisable to verify one hour in advance that a performance contract with a negligent contractor allows for the expected deductible amount to be offset and kept in a deposit for payment after the claim is settled.
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