Risk management against groundwater at construction sites – the insurance aspect
Jul 10, 2023
From: Omri Nissany, Civil Engineer, Licensed Insurance Agent
Fourth article in the series
Until recently, the issue of groundwater on construction sites in Israel was not a fundamental and critical issue. Most contractor insurance policies did not address the issue at all, and even when insurance company surveyors mentioned groundwater in their work, there was usually no significant resolution.
However, following the major changes that have occurred in the industry, mainly due to unprecedented changes in attitude on the part of reinsurers abroad (which are the insurance companies that provide Israeli companies with economic and financial backing), the existence of groundwater at the construction site is an issue that cannot be taken lightly .
Every project today that involves groundwater intrusion, or even just a certain risk of such intrusion, undergoes a detailed and meticulous underwriting process.
This trend corresponds with numerous cases of groundwater eruptions at construction sites in Israel, which have (literally) flooded the headlines and media. This is alongside not-at-all-uncommon incidents of land subsidence and sinkholes, sometimes caused by groundwater.
From: Omri Nissany, Civil Engineer, Licensed Insurance Agent
Fourth article in the series
Until recently, the issue of groundwater on construction sites in Israel was not a fundamental and critical issue. Most contractor insurance policies did not address the issue at all, and even when insurance company surveyors mentioned groundwater in their work, there was usually no significant resolution.
However, following the major changes that have occurred in the industry, mainly due to unprecedented changes in attitude on the part of reinsurers abroad (which are the insurance companies that provide Israeli companies with economic and financial backing), the existence of groundwater at the construction site is an issue that cannot be taken lightly .
Every project today that involves groundwater intrusion, or even just a certain risk of such intrusion, undergoes a detailed and meticulous underwriting process.
This trend corresponds with numerous cases of groundwater eruptions at construction sites in Israel, which have (literally) flooded the headlines and media. This is alongside not-at-all-uncommon incidents of land subsidence and sinkholes, sometimes caused by groundwater.
Zero tolerance policy
Insurance companies have a zero-tolerance policy towards groundwater. First, the underwriting process involves going into detail, including the identity of the demolition contractor (experience, background, etc.), the experience of the main contractor in similar projects, and more. To the extent that there is a risk of groundwater eruption on the site, insurance companies tend to express this with high deductibles and even through outright exclusions .
In other words, if you are facing a construction site project with a risk of dealing with groundwater, it is important to understand that the contractor's insurance policy does not necessarily provide adequate insurance coverage and sometimes there is no coverage at all.
In the following short article, we will discuss several possible ways that can provide a solution to this complex issue through three main risk management mechanisms – insurance, contractual, and preventive .
Insurance companies have a zero-tolerance policy towards groundwater. First, the underwriting process involves going into detail, including the identity of the demolition contractor (experience, background, etc.), the experience of the main contractor in similar projects, and more. To the extent that there is a risk of groundwater eruption on the site, insurance companies tend to express this with high deductibles and even through outright exclusions .
In other words, if you are facing a construction site project with a risk of dealing with groundwater, it is important to understand that the contractor's insurance policy does not necessarily provide adequate insurance coverage and sometimes there is no coverage at all.
In the following short article, we will discuss several possible ways that can provide a solution to this complex issue through three main risk management mechanisms – insurance, contractual, and preventive .
Insurance risk management for dealing with groundwater on a construction site can be reflected in the contract with the groundwater lowering contractor and/or other relevant contractors (such as excavation contractors or drilling contractors). It is advisable to ensure, when contracting with these contractors, that comprehensive insurance exists for the subject of work involving groundwater.
Please note that if the contractor or developer contracts with a groundwater depletion contractor who does not have an appropriate policy, and if there is no clear contractual protection between the parties, then a groundwater outage event may be uncovered.
Whether against a third-party claim that will likely be filed against all contractors and other parties associated with the site, or following damage to property or person. Sometimes the scope of the deductible in the policy of the demolition contractor will be lower than the scope of the deductible in the contractor's policy for the entire project.
Insurance risk management
Another important circle of risk management on a construction site facing groundwater concerns hedging the risk at the contractual level . A solution that deals with both agreements between the main contractor and the various subcontractors, primarily the subgrade contractor, and the project's major contracts between the developer and the main contractor.
For example, in a case where the groundwater eruption occurred near the delivery, when the demolition contractor had already left the area, and there is a dispute between the developer and the contractor regarding who will bear the costs of the damage, which can amount to millions of shekels.
In managing contractual risks, one must also take into account events that may occur to the project at different stages of its progress. For example, it is known that the groundwater level is not constant and varies according to precipitation and seasonal parameters. It is certainly possible that the work is carried out properly in the summer, but with the arrival of winter, when the groundwater level rises, flooding occurs, which will cause enormous damage (for example, damage to elevators, parking lots, parking multipliers, robotic installations, etc.).
The recommendation in this regard is to create clear contractual risk management between the developer and the contractor regarding this type of damage that is not covered by the policy or that requires a deductible in particularly high amounts.
Contractual risk management
Preventive risk management
One of the accounting principles in the field of insurance, which is as true for contractor insurance as for any other policy, is " preventing the plague ." As King Solomon said, " The law of the wise is a source of life - to deliver from the snares of death " (Proverbs 13:14).
In other words, preventive risk management should be promoted in construction work with groundwater, the goal of which is to create as many layers of protection as possible against future insurance events. This is no small matter when we are dealing with groundwater. This is because many times the eruptions are not necessarily expected or are not expected to the extent of the actual flow.
It is advisable for the contractor or developer to do everything in their power to avoid attending such an event, especially in light of the potential loophole in the contractor's policy.
As far as the developer is concerned, it is worth considering avoiding entering the planning process in projects that increase the risk of conflict with groundwater. In simpler terms, it is quite possible that the financial gain generated by an additional 10-20 parking spaces on the fourth floor of the underground parking garage will not be worth the risk of penetrating to the depth where groundwater may await us. Responsible developers will always consider canceling this type of floor and make changes accordingly.
Additionally, when a groundwater solution is needed on site, it is important to contact a drainage contractor with proven experience and expertise. In the absence of insurance coverage, negligence or lack of professionalism on the part of the drainage contractor could leave the contractor or developer with a broken gutter.
To read the first article in the series, click the link
To read the second article in the series, click the link
To read the third article in the series, click the link
One of the accounting principles in the field of insurance, which is as true for contractor insurance as for any other policy, is " preventing the plague ." As King Solomon said, " The law of the wise is a source of life - to deliver from the snares of death " (Proverbs 13:14).
In other words, preventive risk management should be promoted in construction work with groundwater, the goal of which is to create as many layers of protection as possible against future insurance events. This is no small matter when we are dealing with groundwater. This is because many times the eruptions are not necessarily expected or are not expected to the extent of the actual flow.
It is advisable for the contractor or developer to do everything in their power to avoid attending such an event, especially in light of the potential loophole in the contractor's policy.
As far as the developer is concerned, it is worth considering avoiding entering the planning process in projects that increase the risk of conflict with groundwater. In simpler terms, it is quite possible that the financial gain generated by an additional 10-20 parking spaces on the fourth floor of the underground parking garage will not be worth the risk of penetrating to the depth where groundwater may await us. Responsible developers will always consider canceling this type of floor and make changes accordingly.
Additionally, when a groundwater solution is needed on site, it is important to contact a drainage contractor with proven experience and expertise. In the absence of insurance coverage, negligence or lack of professionalism on the part of the drainage contractor could leave the contractor or developer with a broken gutter.
To read the first article in the series, click the link To read the second article in the series, click the link To read the third article in the series, click the link
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