Murphy's Law, collapsing piles, and insurance
Dec 27, 2023
By: Miri Lebaher
A contractor-developer requested to carry out a project in the north of the country to build a large commercial center with a basement that required digging two floors underground.
The value of the entire project was estimated at more than 100 million shekels, but in the first stage, a building permit was received for excavation and backfilling only. The contractor, who was quick to act, purchased insurance for the excavation and backfilling work only, began performing the work under the partial insurance, and did not purchase insurance in advance against the entire value of the project.
"What could possibly happen in the excavation and lining?", he thought to himself. He thought and was wrong. In the construction industry and in the construction insurance field in particular, Murphy's Law works overtime.
By: Miri Lebaher
A contractor-developer requested to carry out a project in the north of the country to build a large commercial center with a basement that required digging two floors underground.
The value of the entire project was estimated at more than 100 million shekels, but in the first stage, a building permit was received for excavation and backfilling only. The contractor, who was quick to act, purchased insurance for the excavation and backfilling work only, began performing the work under the partial insurance, and did not purchase insurance in advance against the entire value of the project.
"What could possibly happen in the excavation and lining?", he thought to himself. He thought and was wrong. In the construction industry and in the construction insurance field in particular, Murphy's Law works overtime.
Collapse of the piles and insurance
Towards the end of the excavation and lining work, it became clear to the contractor's astonishment that the ultrasonic tests on a significant portion of the piles indicated that the piles were too short and did not reach the full depth of the drilling. The incident caused the contractor approximately 5 million shekels in damage because there was no way to avoid redoing the entire work.
However, since the value of the excavation and backfilling work was estimated at only 12 million shekels, while the coverage in the relevant policy extension: damage resulting from defective materials, defective workmanship, or defective planning, is 10% of the value of the work, the contractor found himself with a coverage shortfall of approximately 3.8 million shekels. If he had insured the entire value of the project from the start, his cause of action could have been more than 10 million shekels, and would have provided him with the necessary protection, to the extent that physical damage could indeed be proven under the terms of the policy.
Towards the end of the excavation and lining work, it became clear to the contractor's astonishment that the ultrasonic tests on a significant portion of the piles indicated that the piles were too short and did not reach the full depth of the drilling. The incident caused the contractor approximately 5 million shekels in damage because there was no way to avoid redoing the entire work.
However, since the value of the excavation and backfilling work was estimated at only 12 million shekels, while the coverage in the relevant policy extension: damage resulting from defective materials, defective workmanship, or defective planning, is 10% of the value of the work, the contractor found himself with
Not only was the insured required to spend a considerable amount of money out of his own pocket to cover the cost of the damage, but he also had difficulty finding an insurance company that would agree to insure the entire project, after work began with such significant damage.
These words are said even more strongly in light of the current atmosphere in the construction insurance industry and the increasing involvement of reinsurers abroad. A setting in which insurance companies are, to put it mildly, reluctant to enter into high-risk projects. Even more so, for projects on which work has already begun or in which various events have occurred.
Worse still, this is a double loss (!).
In conclusion,
התחלת עבודות בנייה ללא רכישת ביטוח במלוא שווי הפרויקט עלולה להתגלגל לכדי כדור שלג שסופו מי ישורנו. לעתים קרובות קבלנים ויזמים עושים זאת בטעות ומתוך לחצים מובנים הרובצים לפתחם. במיוחד לנוכח מצבו המאתגר של ענף הבנייה.
אולם גם כאשר המתח דוחק ולוחות הזמנים מקשים, חשוב לזכור שהכלל הוא פשוט – אין ביטוח מאושר, אין עבודות. בענף הבנייה, חוקי מרפי עובדים שעות נוספות.
Starting construction work without purchasing insurance for the full value of the project can lead to a snowball effect that no one can stop. Contractors and developers often do this by mistake and out of inherent pressures, especially given the challenging state of the construction industry.
But even when the pressure is on and the schedules are tight, it's important to remember that the rule is simple – no approved insurance, no work. In the construction industry, Murphy's Law works overtime.
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