Cracks in the tiles or in the policy?
Jul 31, 2022
From: Attorney Shlomi Hadar - John Geva, Hadar & Co. - Lawyers and Mediators
introduction:
A contracting company was contracted to build two residential buildings in Petah Tikva. During the project, it was discovered that there were cracks in the tiles. The contracting company filed a claim with the insurance company for compensation for the damages it suffered, but the company refused, claiming that it was not an accidental event as defined in the policy. Did the policy apply in the above case? The Lod District Court considered this.
From: Attorney Shlomi Hadar - John Geva, Hadar & Co. - Lawyers and Mediators
introduction:
A contracting company was contracted to build two residential buildings in Petah Tikva. During the project, it was discovered that there were cracks in the tiles. The contracting company filed a claim with the insurance company for compensation for the damages it suffered, but the company refused, claiming that it was not an accidental event as defined in the policy. Did the policy apply in the above case? The Lod District Court considered this.
Factual background:
The plaintiff is a company engaged in the planning and execution of projects in the field of civil engineering. On 25.10.09, it entered into an agreement to carry out work to construct two residential buildings in Petah Tikva (hereinafter: " the Project "). The defendant, the insurance company, insured the plaintiff, the contracting company and the project developer with contractor work insurance. Under the name of the insured in the policy, it is written as follows: " The project developer, the main insured and/or subsidiaries and/or the work orderers and/or the supervisor and/or the project manager, except for their professional liability if they are not employees of the main insured and/or contractors and/or subcontractors and/or the plaintiff ."
According to the plaintiff, during cleaning work carried out in the stairwells of the building prior to the project being handed over, cracks were discovered in the ceramic tiles that had been installed on site. Immediately upon identifying the cracks and in order to minimize and repair the damage, the plaintiff contacted the company that supplied the ceramic tiles, which sent representatives to inspect the tiles and the cracks that had formed. The tile company contacted the company that supplied the adhesives used to adhere the tiles in the project, to examine the nature of the damage that had occurred. After a meeting between the project representatives and the representatives of the adhesive company, it was decided on several repairs that should be made to minimize the damage to the ceramics. Immediately upon discovering the cracks, the defendant was given a notice detailing the severe damage that had been caused to the project when the tiles were adhered. After the defendant's counsel examined the damage to the tiles, the defendant decided to reject the claim for insurance compensation due to these damages, and this claim was therefore filed.
The plaintiff is a company engaged in the design and execution of civil engineering projects. On October 25, 2009, it entered into a contract to carry out works for the construction of two residential buildings in Petah Tikva (hereinafter: “the Project”). The defendant, the insurance company, insured the plaintiff, the contracting company, and the project developer under a contractor works insurance policy. Under the name of the insured in the policy, it was written as follows:
"The project developer, the primary insured, and/or subsidiaries, and/or clients, and/or the supervisor, and/or the project manager, except for their professional liability if they are not employees of the primary insured, and/or contractors, and/or subcontractors, and/or the plaintiff."
According to the plaintiff, during cleaning works conducted in the stairwells of the building prior to project handover, cracks were discovered in the installed ceramic tiles. Upon identifying the cracks and in order to minimize the damage and carry out repairs, the plaintiff contacted the company that supplied the ceramic tiles, which sent representatives to inspect the tiles and the cracks. The tile supplier then contacted the company that supplied the adhesive materials used to install the tiles to examine the nature of the damages. After a meeting between the project representatives and the adhesive company representatives, it was decided on several repairs to reduce the damage to the tiles.
Immediately after the cracks were discovered, the plaintiff notified the defendant, detailing the significant damage caused to the project by the tile installation. Following an assessment by the defendant’s consultant of the tile damages, the defendant decided to reject the claim for insurance compensation for these damages, which led to the filing of this lawsuit.
According to the plaintiff, the contractor of the project, the installation of the tiles was done in accordance with the recommendation of a company specializing in tile installation. The formation of cracks in the ceramic tiles constitutes an insurance event covered in accordance with the policy and in accordance with the extension concerning " direct damage from defective design/work/materials ". According to the plaintiff, the defendant is also liable for damages that were caused in a way that was not sudden, sharp and immediate, but rather gradual. Furthermore, according to them, the defendant must compensate the plaintiff for the damages that she suffered as a result of the cracking of the tiles, in accordance with the policy and in accordance with the Insurance Contract Law . Finally, the damages, according to the plaintiff, are estimated at approximately 3.4 million NIS and therefore the defendant is obliged to compensate her in this amount.
According to the defendant, the insurance policy purchased by the plaintiff does not provide insurance coverage for the damages alleged in the statement of claim. According to her, a contractor's work insurance policy is not intended to serve as a certificate of warranty for the quality of the construction. A consultant's examination indicates that the cracks in the tiles were caused by the use of unsuitable materials and an inappropriate selection of tiles, and that the policy does not apply to this. Furthermore, the defendant claimed that liability should be imposed on the planning architect and/or the tile company and/or the adhesive company.
The parties' claims:
The dispute between the parties revolved around three main issues: the cause that led to the cracking of the tiles; whether the cracking of tiles falls under the definition of an "insured event" and as such obliges the defendant to pay insurance benefits; and the extent of the damage.
On the factual level , there is a dispute between the parties regarding the main cause of the cracks in the tiles. The parties submitted detailed opinions regarding the main cause of the cracks in the tiles, and ultimately the defendant's claim was accepted that the cracking in the tiles was caused by poor planning or poor workmanship.
At the insurance level , the basic rule regarding the burden of proof in insurance claims is that the burden of persuasion regarding the occurrence of the insured event lies with the insured, while the burden of proving that one of the exceptions listed in the policy that negates its liability exists is on the insurer. According to the definition of the policy, in order for any damage to be defined as an "insured event" it must meet a number of cumulative conditions: physical damage; sudden and unexpected in the first place. In order to examine whether this is an event that meets the above definition, it is necessary to examine the parties' understanding of the policy's applicability to the case in question and thus examine whether it is unexpected and sudden or expected and not sudden. The defendant's argument, the insurance company, is accepted in this case and it is ruled that the damage caused was not expected since the contractor knew that a combination of incorrect tiles and adhesives would cause the tiles to crack. Furthermore, it is not disputed that the damage caused was expected and that it accompanied the project in its last year of work.
The coverage level indicates that the policy applies in cases where there is " indirect damage from poor design, poor materials or poor workmanship " or " direct accidental damage as a result of poor design: The policy is extended to cover accidental and unexpected physical loss or damage to items that form part of the insured work due to poor materials and/or poor workmanship and/or poor planning that occurred and were discovered during the insurance period ." In this case, this is direct damage resulting from poor design and poor workmanship and is not an accidental event under the policy. Therefore, the policy does not cover the cracking of the tiles.
The court's decision:
More than necessary, the judge noted that, beyond the lack of proof of the defendant's liability, the plaintiff did not meet the burden of proving the amount of damage alleged by her, since the appraiser's assessment was not supported by references or any evidence of the quantification of the damage. The plaintiff was also required to compensate the defendant with attorney's fees of NIS 62,000 and to bear the expenses of third parties who were added to the proceedings.
Compensation:
Summary:
As ruled, the contracting company is solely responsible for its negligence in installing the tiles. In light of the fact that the damage was caused by poor planning and was foreseeable, the insurance policy does not apply in this case.
Insurance provides a solution to unexpected events and reduces many risks involved in contracting work, however, there are cases in which insurance is not the solution. In the context of performing work, risks must be managed and one must avoid turning a blind eye to the comments of consultants and experts who accompany the construction process, as a warning or professional reservation may negate a claim for an unexpected event, thus exposing the contractor to damages caused by his negligence.
As ruled, the contracting company is solely responsible for its negligence in installing the tiles. In light of the fact that the damage was caused by poor planning and was foreseeable, the insurance policy does not apply in this case.
Insurance provides a solution to unexpected events and reduces many risks involved in contracting work, however, there are cases in which insurance is not the solution. In the context of performing work, risks must be managed and one must avoid turning a blind eye to the comments of consultants and experts who accompany the construction process, as a warning or professional reservation may negate a claim for an unexpected event, thus exposing the contractor to damages caused by his negligence.
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