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.
Ahithophel's advice
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 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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