Groundwater at the construction site – the insurance aspects
Jul 16, 2020
From: Omri Nissany, Civil Engineer
Dealing with water is a dramatic issue in the construction industry. Both in terms of groundwater "waiting" for a project underground, and surface runoff and rainwater (which we have discussed quite a bit on our website, see
Awareness of the issue is gaining momentum, and while in the past, integrating a hydrologist into project planning was considered a side function, today more and more contractors and developers are not giving up on this expert. In part, in light of a series of cases, both large and small, in which water caused significant damage to the project, schedules, and third parties.
One of the well-known incidents, which was even discussed at length in the courts, is a project carried out several years ago by Malibu Construction Ltd. This was as part of a lawsuit filed against the Ayalon Insurance Company, and based on a claim for entitlement to insurance coverage under a contractor's work policy (T.A. 21-30-01623, ruling issued in 2016).
In this case (hereinafter: the "Malibu case"), a project was discussed that included the construction of an underground passage in the north of the country, when it was clear even during the planning that the land was "rich in groundwater". Malibu worked to deplete the groundwater, according to the plan, and made good progress with the work. However, two years after the start of the work, months after the work had already been done on dry ground, another sudden groundwater outburst occurred. The company was forced to deal with major damage to the project and the need to carry out significant additional actions to deplete the water and repair the damage, as well as to absorb significant expenses due to the major delays in execution.
From: Omri Nissany, Civil Engineer
Dealing with water is a dramatic issue in the construction industry. Both in terms of groundwater "waiting" for a project underground, and surface runoff and rainwater (which we have discussed quite a bit on our website, see for example here ).
Awareness of the issue is gaining momentum, and while in the past, integrating a hydrologist into project planning was considered a side function, today more and more contractors and developers are not giving up on this expert. In part, in light of a series of cases, both large and small, in which water caused significant damage to the project, schedules, and third parties.
One of the well-known incidents, which was even discussed at length in the courts, is a project carried out several years ago by Malibu Construction Ltd. This was as part of a lawsuit filed against the Ayalon Insurance Company, and based on a claim for entitlement to insurance coverage under a contractor's work policy (T.A. 21-30-01623, ruling issued in 2016).
In this case (hereinafter: the "Malibu case"), a project was discussed that included the construction of an underground passage in the north of the country, when it was clear even during the planning that the land was "rich in groundwater". Malibu worked to deplete the groundwater, according to the plan, and made good progress with the work. However, two years after the start of the work, months after the work had already been done on dry ground, another sudden groundwater outburst occurred. The company was forced to deal with major damage to the project and the need to carry out significant additional actions to deplete the water and repair the damage, as well as to absorb significant expenses due to the major delays in execution.
Malibu Company Claim
In a lawsuit filed by Malibu for compensation from the insurance company, the plaintiff claimed that she was entitled to coverage under the insurance policy for the contractor's work . This is because the recent groundwater outburst was unexpected and caused by a sudden damage to the rock, also in light of the preliminary soil survey. After a fierce dispute that was heard before the Central District Court, it was determined that Malibu would receive an amount of approximately 9.4 million shekels from the insurance company.
Later, Attorney Dr. Kobi Kaplinsky, who represented Malibu against the insurance company, would tell in an interview about the lawsuit's thesis in the case: "(The insurance company claimed) that it was known in the tender documents that there would be groundwater, so why are you now saying that it was unexpected and that it was an insurance event? We claimed exactly the opposite. We said that we did know that there would be groundwater and we even took care of it, but the water we encountered at minus 10 was artesian water originating from the mountain aquifer and no one warned us about this, so from our perspective this is an unexpected event and an insurance event" ("Haptish", Bar Association, Issue 6, June 2018).
Another recent and famous example is the "Youth Towers" project in Tel Aviv. Construction of the project was supposed to be completed in 2016, but was significantly delayed, in part due to a groundwater flooding incident that rose to four meters.
In a lawsuit filed by Malibu for compensation from the insurance company, the plaintiff claimed that she was entitled to coverage under the
Later, Attorney Dr. Kobi Kaplinsky, who represented Malibu against the insurance company, would tell in an interview about the lawsuit's thesis in the case: "(The insurance company claimed) that it was known in the tender documents that there would be groundwater, so why are you now saying that it was unexpected and that it was an insurance event? We claimed exactly the opposite. We said that we did know that there would be groundwater and we even took care of it, but the water we encountered at minus 10 was artesian water originating from the mountain aquifer and no one warned us about this, so from our perspective this is an unexpected event and an insurance event" ("Haptish", Bar Association, Issue 6, June 2018).
Another recent and famous example is the "Youth Towers" project in Tel Aviv. Construction of the project was supposed to be completed in 2016, but was significantly delayed, in part due to a groundwater flooding incident that rose to four meters.
The issue of groundwater eruptions at construction sites can be divided into two levels:
- Seemingly expected - a flooding event in a project where, from the outset, soil tests proved/indicated the existence of groundwater, and the infiltration into the underground reservoir was done during planning.
- Unexpected – an event of groundwater flooding that "surprises" the contractors/developers in the field and causes unexpected and unplanned damage, as well as requiring a response at an extremely expensive cost.
In projects where groundwater flooding was "apparently expected," we are dealing with construction sites where soil tests have proven/indicated in advance that there is a groundwater reservoir on site that will need to be taken into account (see "A Matter of Concern"). In these situations, the soil consultant who conducts the tests, in conjunction with the hydrologist, plans the manner in which the groundwater entry will be carried out. And plans a precise process of "groundwater lowering" (from the word "to lower," meaning to lower).
Groundwater depletion is a complex process, and it is important to know that it also creates risks to the hydrological balance of the environment. For example, it is known that water that is "degraded" from one point causes changes in the soil at another point, and constitutes a risk factor for buildings, property and infrastructure in nearby areas. Our agency recently received information about a case in Haifa in which groundwater depletion that affected the hydrological balance caused damage near the construction site, such as: fallen power poles, raised sidewalks, and more.
If a situation of unplanned groundwater flooding occurs, the project faces two dramatic challenges:
- Handling the "unexpected" groundwater: The contractor/developer must provide a quick response to the situation by contracting with an external company that specializes in groundwater depletion. This is of course contrary to the timelines, milestones in the project, and of course, its completion date.
- Handling damage caused by flooding: To the extent that damage is caused to the construction site, equipment, or third parties, the contractor/developer will have to deal with the consequences.
Groundwater flooding – expected or unexpected?
The insurance test – and also: What did the court and the compensation in the Malibu case prove?
Many contractors and developers rightly wonder whether the contractor's policy provides quality and broad coverage even for these (relatively common) cases of groundwater flooding and damage to the construction site and its surroundings. This depends first on the basic question: whether the policy includes a blanket exclusion for groundwater, an exclusion that is unfortunately found in many contractor's policies in the Israeli market.
Assuming there is no blanket exclusion, the answer varies from project to project, and from policy to policy, and is mainly based on the question of whether the groundwater flooding was a "sudden and unforeseen event" as defined in the insurance event in the contractor's work insurance policy. If the preliminary soil survey indicated the existence of groundwater, and the groundwater intrusion was planned, there is apparently no insured event here and it is likely that the insurance company will not be willing to recognize the event as an insured event. The main response to this issue is proof that although the intrusion itself was foreseeable, the source, quantity and intensity of the water were unforeseen. This was the case, for example, in the Malibu matter mentioned above.
In a sidebar, we note that one of the reasons Malibu was able to meet the necessary burden of proof placed on it was the arrival of more than 10 professionals to the construction site during the flooding, who investigated, studied, and documented the circumstances of the incident thoroughly and in real time (exactly as we do in our clients' lawsuits). This is how attorney Kobi Kaplansky, who represented the company, described it in retrospect:
"Anyone who is in the insurance arena has a much greater chance of winning. As lawyers, you should know that if something happens, the first thing I do is send our appraiser to the insurance arena, and I also go to the arena to see. We brought 11 witnesses, including the foreman, who will explain to the judge what happened there."
In conclusion, it is said that if a groundwater breach is unexpected, it may be possible to apply insurance to it to one degree or another. This is so long as the contractor's policy does not specify an exclusion for groundwater and does not specify appropriate liability limits. Since damages caused as a result of a groundwater breach can be particularly large, to the point of posing a significant risk to the entire project, this should not be taken lightly when purchasing the policy.
Many contractors and developers rightly wonder whether the contractor's policy provides quality and broad coverage even for these (relatively common) cases of groundwater flooding and damage to the construction site and its surroundings. This depends first on the basic question: whether the policy includes a blanket exclusion for groundwater, an exclusion that is unfortunately found in many contractor's policies in the Israeli market.
Assuming there is no blanket exclusion, the answer varies from project to project, and from policy to policy, and is mainly based on the question of whether the groundwater flooding was a "sudden and unforeseen event" as defined in the insurance event in the contractor's work insurance policy. If the preliminary soil survey indicated the existence of groundwater, and the groundwater intrusion was planned, there is apparently no insured event here and it is likely that the insurance company will not be willing to recognize the event as an insured event. The main response to this issue is proof that although the intrusion itself was foreseeable, the source, quantity and intensity of the water were unforeseen. This was the case, for example, in the Malibu matter mentioned above.
In a sidebar, we note that one of the reasons Malibu was able to meet the necessary burden of proof placed on it was the arrival of more than 10 professionals to the construction site during the flooding, who investigated, studied, and documented the circumstances of the incident thoroughly and in real time (exactly as we do in our clients' lawsuits). This is how attorney Kobi Kaplansky, who represented the company, described it in retrospect:
"Whoever is in the insurance arena, his chances of winning are much greater. You as lawyers know, if something happened, the first thing I send our appraiser to the insurance arena and I also go to the arena to see. We brought 11 witnesses, including the foreman, who will explain to the judge what happened there."
In conclusion, it is said that if a groundwater breach is unexpected, it may be possible to apply insurance to it to one degree or another. This is so long as the contractor's policy does not specify an exclusion for groundwater and does not specify appropriate liability limits. Since damages caused as a result of a groundwater breach can be particularly large, to the point of posing a significant risk to the entire project, this should not be taken lightly when purchasing the policy.
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