Question and Answer – What are the main highlights regarding new apartment renovation insurance?
Nov 26, 2021
question:
We are planning to do extensive renovations to a second-hand apartment we bought. What insurance should we purchase for the project and who will do it (us or the renovation contractor)?
answer:
Extensive apartment renovation is a complex task that entails many risks. Both risks related to the property of the property owner and third parties, and bodily harm as a result of unsafe and dangerous work. In a sidebar, we note that according to official reports from the National Insurance Institute, about 25% (!) of fatal accidents on construction sites in Israel are in renovation and private construction work. A worrying figure by all accounts.
It should be understood that the property owner is defined by law as the "contractor of the work" and if the work is not performed by a "key contractor," but rather by multiple contractors that you employ in the field, then you are also defined as the "construction operator." These definitions are a legal status with far-reaching implications regarding liability in tort law.
question:
We are planning to do extensive renovations to a second-hand apartment we bought. What insurance should we purchase for the project and who will do it (us or the renovation contractor)?
answer:
Extensive apartment renovation is a complex task that entails many risks. Both risks related to the property of the property owner and third parties, and bodily harm as a result of unsafe and dangerous work. In a sidebar, we note that according to official reports from the National Insurance Institute, about 25% (!) of fatal accidents on construction sites in Israel are in renovation and private construction work. A worrying figure by all accounts.
It should be understood that the property owner is defined by law as the "contractor of the work" and if the work is not performed by a "key contractor," but rather by multiple contractors that you employ in the field, then you are also defined as the "construction operator." These definitions are a legal status with far-reaching implications regarding liability in tort law.
Your current home insurance can provide basic protection for a small renovation of up to NIS 50,000 (and even that with quite a few caveats). If the renovation is significant and larger, the only insurance that can provide a comprehensive solution is: Contractors' Work Insurance .
There are policies on the market called "Builder and Renovator Insurance" which are cheap in terms of premium and provide a good solution regarding coverage, but either way, it is worth paying attention to a number of points when purchasing such insurance:
· Purchasing a policy with BIT terms – policy terms known in construction and renovation insurance as "BIT terms." - The basic recommended terms for insuring contractor work, and it is advisable to check that the renovation policy is indeed subject to these terms.
· Third-party insurance and employer liability in a relatively high amount – remember that the property owner is a third party vis-à-vis employees in the project and vis-à-vis the National Insurance Institute (which can file compensation claims in the event of a work injury).
· The primary insured – The primary insured can be the property owner or the main renovation contractor. If the property owner wants to place the purchase of insurance on the contractor, it is advisable to do so in accordance with a well-organized insurance appendix attached to the contract agreement, which clearly defines the various requirements.
· Insurance coverage for the property on which work is being done and/or for adjacent property and insurance for an existing structure – Renovation work is likely to be done on an existing structure. Ensure insurance coverage for damage that may be caused to the property on which work is being done because the existing structure that belongs to the client and on which the work is being done is not considered a third party in the policy. It is recommended to ensure insurance for the existing structure while providing an appropriate amount that also includes the cost of building the entire structure in the extreme case of total damage.
· Pay attention to exceptions – every construction insurance policy has exceptions and limitations. Failure to meet the pre-determined conditions in a particular exception may result in a situation where you will not have insurance on the day of the event. Since renovation work can result in high claims, this should not be taken lightly.
· It is very important to consult with an expert about the policy and to set out when you fully understand the various risks and insurance exposure.
Your current home insurance may provide basic coverage for minor renovations of up to approximately ₪50,000 (and even then with numerous limitations). If the renovation is more substantial, the only insurance that can provide comprehensive protection is Contractors’ All-Risk Insurance.
There are policies on the market known as “Insurance for Builders and Renovators”, which are inexpensive in terms of premiums and provide a decent level of coverage. However, when purchasing such insurance, it is important to pay attention to several key points:
Purchase the policy under “BID Conditions” – These are policy conditions commonly used in construction and renovation insurance, known as “BID Conditions.” It is recommended that Contractors’ All-Risk insurance—and renovation insurance in particular—be subject to these conditions.
Third-party and Employers’ Liability coverage at a relatively high limit – Remember that the property owner is considered a third party in relation to workers on the project and the National Insurance Institute, which can file subrogation claims in the event of workplace injuries.
The primary insured – The primary insured can be either the property owner or the main renovation contractor. If the property owner wishes to have the contractor purchase the insurance, it is advisable to do so through a proper insurance addendum attached to the service agreement, clearly defining all requirements.
Coverage for property being worked on and surrounding property, and insurance for the existing building – Renovation work is obviously carried out on an existing structure. Ensure there is insurance coverage for damage that may occur to the property being worked on, as the existing building, which belongs to the client and is being renovated, is not considered a third party under the policy. It is recommended to ensure coverage for the existing building with a suitable sum insured that includes the full reconstruction cost in the extreme case of total damage.
Pay attention to exclusions – All construction insurance policies include exclusions and limitations. Failure to comply with pre-defined conditions under a particular exclusion could result in lack of coverage when needed. Since renovation work can give rise to claims of substantial amounts, this should not be taken lightly.
Consult an expert – It is crucial to discuss the policy with a specialist and only proceed once you fully understand the various risks and your insurance exposure.
