Limitation period for insurance claims in contractor work insurance / product liability / professional liability
Sep 10, 2023
By: Itzick Simon
When does an insurance claim expire and did you know about the difference between property and bodily injury claims? Read about the statute of limitations in contractor work insurance and professional liability and product liability insurance.
The statute of limitations is a legal concept that expresses the maximum legal period of time for filing a claim from the day the cause of action arose. Israeli law sets different statutes of limitations for different issues, but one principle applies to all of them: upon the expiration of the statute of limitations, and in the absence of a justifiable and exceptional reason, the claim shall be
As we deal with insurance claims in the construction industry, it is important to clarify the issue. In the following short article, we will address this both in terms of contractor work insurance and in terms of liability insurance: professional liability and product liability.
Statute of limitations in contractor work insurance and the difference between property damage and bodily injury
The contractor’s insurance policy is composed of three sections: Property, Third Party, and Employers’ Liability.
In cases where a claim is made under Section A – Property, it typically involves a situation in which the insured seeks compensation for damage caused to the project works by a physical and unforeseen event. Examples include a wall collapse, flooding, fire outbreak, and similar incidents.
For such claims, according to Section 31 of the Insurance Contract Law, 1981, the statute of limitations is three years from the date of the event or from the date the damage was discovered, whichever occurs first.
Claims filed under Section B – Third Party, on the other hand, can include both bodily injury claims and property damage claims. This distinction is important because the statute of limitations for bodily injury claims is seven years (rather than three years, as is the case for property claims). The same applies to claims under Section C – Employers’ Liability, which concern bodily injury to employees resulting from accidents that occur during their work on the site.
Since the statutes of limitations are not short—extending over three or seven years—it is common to encounter a “long tail” phenomenon: the claim is filed several years after the event, court proceedings can also take a significant amount of time, and insurance companies may be dealing with the incident for many years.
Extension of the statute of limitations for minor victims
An important issue to be aware of is the extension of the statute of limitations in the case of minor victims. Whether it is a minor bystander who is injured as a result of a hazard related to construction work or a minor employee who files a claim based on employer liability. In these situations, the statute of limitations will only begin from the moment the minor turns 18 until they reach the age of 25 (seven years). For example: It is certainly possible for a 10-year-old child who is injured near a construction site to file his claim for compensation up to 15 years later.
Are there any consequences for late filing within the statute of limitations?
In property claims, the insured is obligated to file his claim within the statute of limitations, and even on the last day . In practice, of course, it is not acceptable to wait until the 90th minute.
When the event occurs, the insured is obligated to notify the insurer of its occurrence, and to allow it to examine the damages in real time by its experts. Any delay in notification can have consequences regarding the insurer's response, its ability to assess the damages in real time, its right to examine its liability, raising suspicions regarding the credibility of the plaintiff and the claim, and so on.
If the insured does not provide the notification until some time has passed, the insurance company may raise various claims on its part. Mainly claims concerning the possibility of minimizing damages or its (the injured party's) right to document the incident in real time, to ascertain its results, and to examine options for action depending on the circumstances.
Example : A contractor files a claim with the insurance company under the property section and claims that about a year ago he suffered damage at the site that has cost him about a million shekels to date, for which he wants to receive coverage under the policy. The insurance company can claim that if the contractor had involved it in real time, then it could have managed it in a way that would have significantly reduced the repair costs it incurs. The significant gap between immediate notification and late notification can be a significant cause for dispute between the insured and the insurer.
The unequivocal recommendation regarding filing claims of this type is not to "take advantage" of the statute of limitations and think that you have "time to formulate the claim." The statute of limitations is not a "legal tool" and relying on it may turn out to be a mistake that could even lead to a lawsuit in the hands of the insured (to put it mildly).
An important issue is the extended limitation period where the injured person is a minor. This applies whether the injured party is a child passing near a construction site or a young worker bringing an employers’ liability claim. In these circumstances, the seven year limitation period begins only when the minor turns 18 and runs until age 25. For example, a child injured near a construction site at age 10 could bring a compensation claim as much as 15 years later.
Are There Consequences to Filing Late Within the Limitation Period?
For property claims, the insured must file their claim within the limitation period, even if on its final day. In practice, however, waiting until the last minute is inadvisable.
When an incident occurs, the insured must notify the insurer and allow its appointed experts to assess the damage promptly. Any delay in notification may affect the insurer’s handling of the claim, impair its ability to assess the damage and investigate its liability, and raise doubts about the credibility of the claimant and the claim.
If notification is delayed, the insurer may raise various arguments, particularly concerning opportunities to mitigate the damage or its impaired ability to document the incident promptly, examine its consequences, and consider appropriate action.
Example: A contractor submits a claim under the policy’s property section, stating that damage occurred at the site approximately a year earlier and has since resulted in expenses of around NIS 1 million. The contractor seeks coverage for those expenses. The insurer may argue that, had it been involved at the time, it could have managed the repairs at a substantially lower cost. The significant difference between immediate and delayed notification can therefore become a major source of dispute.
The clear recommendation is not to treat the limitation period as permission to delay, assuming that you have “time to put the claim together.” The limitation period is not a claims management tool. Relying on it in this way may prove a serious mistake and could leave the insured without compensation.
In property claims, the insured is obligated to file his claim within the statute of limitations, and even on the last day . In practice, of course, it is not acceptable to wait until the 90th minute.
When the event occurs, the insured is obligated to notify the insurer of its occurrence, and to allow it to examine the damages in real time by its experts. Any delay in notification can have consequences regarding the insurer's response, its ability to assess the damages in real time, its right to examine its liability, raising suspicions regarding the credibility of the plaintiff and the claim, and so on.
If the insured does not provide the notification until some time has passed, the insurance company may raise various claims on its part. Mainly claims concerning the possibility of minimizing damages or its (the injured party's) right to document the incident in real time, to ascertain its results, and to examine options for action depending on the circumstances.
Example : A contractor files a claim with the insurance company under the property section and claims that about a year ago he suffered damage at the site that has cost him about a million shekels to date, for which he wants to receive coverage under the policy. The insurance company can claim that if the contractor had involved it in real time, then it could have managed it in a way that would have significantly reduced the repair costs it incurs. The significant gap between immediate notification and late notification can be a significant cause for dispute between the insured and the insurer.
The unequivocal recommendation regarding filing claims of this type is not to "take advantage" of the statute of limitations and think that you have "time to formulate the claim." The statute of limitations is not a "legal tool" and relying on it may turn out to be a mistake that could even lead to a lawsuit in the hands of the insured (to put it mildly).
Are there any consequences for late filing within the statute of limitations?
For property claims, the insured must file their claim within the limitation period, even if on its final day. In practice, however, waiting until the last minute is inadvisable.
When an incident occurs, the insured must notify the insurer and allow its appointed experts to assess the damage promptly. Any delay in notification may affect the insurer’s handling of the claim, impair its ability to assess the damage and investigate its liability, and raise doubts about the credibility of the claimant and the claim.
If notification is delayed, the insurer may raise various arguments, particularly concerning opportunities to mitigate the damage or its impaired ability to document the incident promptly, examine its consequences, and consider appropriate action.
Example: A contractor submits a claim under the policy’s property section, stating that damage occurred at the site approximately a year earlier and has since resulted in expenses of around NIS 1 million. The contractor seeks coverage for those expenses. The insurer may argue that, had it been involved at the time, it could have managed the repairs at a substantially lower cost. The significant difference between immediate and delayed notification can therefore become a major source of dispute.
The clear recommendation is not to treat the limitation period as permission to delay, assuming that you have “time to put the claim together.” The limitation period is not a claims management tool. Relying on it in this way may prove a serious mistake and could leave the insured without compensation.
Statute of limitations for professional liability insurance or product liability insurance
Product liability and professional liability insurance are designed to provide coverage against third-party claims. Sometimes these involve bodily injury (such as a tile falling on a person walking in the street), or alternatively claims related to poor construction, a defect in the building, etc.
In these insurances, as in the contractor's policy, the statute of limitations for bodily injury and property damage are different and are 7 years and 3 years respectively. However, there is an additional parameter here, which is that the basis of insurance in these policies (as is currently customary in Israel) is of the "Claims Made" type.
In these insurances, the statute of limitations is not the only factor. The validity of coverage in Claims Made insurance depends on the existence of two cumulative conditions: a valid policy on the day of the event and a valid policy on the day the claim is filed (as long as it was filed within the statute of limitations, of course). Given that statutes of limitations can extend exposure even years into the future (the long tail phenomenon), this is even more true.
Product liability and professional indemnity insurance are designed to cover third party claims. These may involve bodily injury, such as a cladding tile falling onto a pedestrian, or claims concerning defective construction, building defects, and similar issues.
As with Contractors’ All Risks insurance, the limitation periods differ for bodily injury and property damage claims: seven years and three years, respectively. However, there is an additional factor: these policies, as commonly issued in Israel today, operate on a “claims made” basis.
Under these policies, the limitation period is not the only consideration. Coverage depends on two cumulative conditions: a policy must be in force on the date of the incident and on the date the claim is made, provided, of course, that the claim is brought within the applicable limitation period.
This is particularly important because limitation periods can extend exposure for years into the future, a phenomenon known as the “long tail.”
In conclusion,
Statute of limitations is an important parameter that must be recognized when addressing claims for the activation of policies in the construction industry. Whether in claims by the insured himself (such as in claims under the property section of contractor work insurance), or in dealing with claims from third parties (such as in contractor insurance under third-party and employers' liability sections, and in professional liability or product liability insurance).
Documents
