Two projects, two policies, one storm and one million shekels
Oct 22, 2018
By Itzik Simon
Two construction projects in central Israel stand across the street from each other, and behind both is the same developer. The first project was insured with one policy, and the second with another, cheaper policy—saving roughly 20,000 shekels. A few months later, a storm swept through the area, causing severe damage to both buildings. The developer—now in distress—realized that “cheap” had turned out to be expensive.
Murphy’s Law struck again. Instead of enjoying full insurance coverage for both projects, the developer had to pay around one million shekels out of his own pocket to cover the damages to the existing building in the project with the “cheaper” policy. Why? Because whatever can go wrong often does, and only comprehensive insurance protects you when trouble comes.
Now, for the explanation: The developer worked with our office for a considerable period—almost six years—which included countless meetings, residents’ assemblies, contract drafting, and correspondence (without charge, as per our office policy). When it came time to start construction, the developer purchased, with our assistance, a contractor’s all-risk insurance policy for the first building. To provide maximum protection for the project, we arranged a policy that also covered the existing building under an “all risks” framework. This meant coverage that included compensation for natural hazards and earthquakes.
By Itzik Simon
Two construction projects in the center of the country stand opposite each other, and the same developer is behind them. The developer insured the first project with one policy, and the second project with another policy, which is about 20,000 shekels cheaper. A few months later, a storm hits the area and causes heavy damage to both buildings. The developer – to his chagrin – discovers that the cheap one is the expensive one.
Murphy's Law struck again. Instead of enjoying full insurance coverage for both projects, the developer was forced to bring in about a million shekels from his own pocket to cover the damage to the existing structure in the project with the "cheap" policy. Why? Because what could go wrong will actually go wrong, and because only comprehensive insurance will protect you on a bad day.
Now, for the explanation.
The developer dealt with our office for a considerable period of time, lasting almost six years and including countless meetings, tenant meetings, contract drafting and correspondence (free of charge, as is customary in our office policy). When he reached the stage where he intended to break ground, the developer purchased a contractor's insurance policy for the first building with our help. In order to provide maximum protection for the project, we prepared a policy for him that also included coverage for the existing building under the "all risks" framework. That is, coverage that included compensation for natural damage and earthquakes.
Ahithophel's advice
So far, everything is well and good. However, two months later, when the developer began construction on the next project on the other side of the street, he was tempted by the contractor's desire to save money and accepted his recommendation to purchase contractor work insurance at a lower cost of approximately 20,000 shekels.
"Don't worry," the contractor told him, "this is excellent insurance. You're well protected. There's also an extension here in the form of 'property being worked on,' so you can relax and let's get going."
The developer, pressured by the contractor, followed his advice and purchased a lesser policy for the second building. However, when an unexpected storm hit the street in May, causing heavy damage to both projects, he realized that this was Ahithophel's advice.
While the policy purchased for the first building included coverage for natural damage, the second policy was lacking.
The developer was forced to pay about a million shekels for the damage to the second building from his personal budget.
All of that was fine—up to a point. However, two months later, when the developer began constructing the next project across the street, he was tempted by the general contractor’s desire to save costs and followed the recommendation to purchase a cheaper contractor all-risk insurance policy, saving approximately 20,000 shekels.
“Don’t worry,” the contractor assured him, “this is an excellent policy. You’re well protected. It even includes an extension for ‘property on which work is performed,’ so you can relax and get started.”
Feeling pressured by the contractor, the developer followed his advice and purchased a less comprehensive policy for the second building. However, when an unexpected storm hit the street in May, causing significant damage to both projects, he realized it had been bad advice.
While the policy purchased for the first building included coverage for natural hazards, the second policy did not.
As a result, the developer had to pay around one million shekels for the damages to the second building from his own funds.
Recommendation for conclusion
Dear contractors and developers, Murphy's Law is the most important law you need to know about the construction industry. Insurance policies must provide real coverage. One that will stand by you on a bad day without reservations or exceptions. Sometimes you get cheaper offers, and obviously you assume (like the rest of us) that "everything will be fine." Well, with construction insurance, there is no room for error.
Bodily and property damage events that are not covered by the policy will leave you with a broken trough. As an insurance agency that has been in the field for about 30 years, we encounter quite a few cases where these types of events have caused financial collapses and reputational damage.
Don't compromise and only set out when you are well insured.
Dear Contractors and Developers,
Murphy’s Law is the most important principle you need to know when it comes to the construction industry. Insurance policies must provide real coverage—coverage that stands by you on the day of need, without exceptions or loopholes.
Sometimes you receive cheaper offers, and it’s natural to assume (as we all do) that “everything will be fine.” But in construction insurance, there is no room for mistakes.
Incidents causing bodily injury or property damage that are not covered by your policy will leave you completely exposed. As an insurance agency specializing in the construction sector for nearly 30 years, we have seen numerous cases where such events led to financial collapse and reputational damage.
Do not compromise—start your projects only when you are fully insured.
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