Insurance policies for contractors: contractor, client, developer – and everything in between
Sep 6, 2017
The Concept of “Contractors’ Insurance”
The term “contractors’ insurance” is broad and encompasses several types of coverage, each designed to address a different risk faced by the contractor:
✔ All-Risk Contractors’ Works InsuranceThis is the most common type of insurance for contractors, and in many cases, it is the only policy a contractor purchases.
✔ Professional Liability and Product Liability InsuranceThese can be purchased alongside contractors’ works insurance and provide additional protection for the contractor. They act as complementary financial safeguards that are essential in everyday operations but become invaluable in the event of a claim—turning ordinary coverage into critical protection.
Execution Contractors and Contractual Contractors: Pressure and Responsibility
Execution contractors for construction projects in Israel carry out work for a wide range of clients: public entities such as government ministries, municipalities, local authorities, the Ministry of Defense, the Ministry of Housing, hospitals, and so on, as well as for private and commercial sectors—development companies, purchasing groups, or private individuals.
Execution and contractual contractors often operate under significant pressure: low profit margins (sometimes unknowingly even losses), complex (and occasionally erroneous) calculations of costs and inputs, strict deadlines, a shortage of workforce—especially skilled labor, and tight, sometimes rigid, supervision from the client. On top of this are business competition, bidding battles to secure projects or tenders, and enormous financial risks due to “fragile” contracts that characterize most engagements with execution or contractual contractors, where even a small mistake can lead to economic collapse.
All of this creates a challenging reality for contractors.
As if that were not enough, the dynamic and busy construction site exposes contractors to both civil and criminal liability, as well as risks of accidents, property damage, or injuries during or after execution. Against this backdrop, the importance of a proper contractors’ insurance program is clear: all-risk contractors’ works insurance and overall risk management in the construction project provide a fundamental protective barrier. Without it, the contractor may be left exposed in the event of an unforeseen incident, project damage, or injury to an employee or third party—which could even lead to financial disaster.
The pressures described, lack of awareness, and low profit margins often lead to poor decision-making regarding contractors’ insurance. The tendency of the “average contractor” is to cut costs wherever possible—especially on insurance—often purchasing incomplete, insufficient, or unprofessional contractors’ insurance policies that do not match the project risks. The focus is placed on the “price line” rather than the quality and scope of coverage.
As described above, the construction contractor bears enormous responsibility, often reflected in stringent construction contracts that effectively place all liability on the contractor.
Skilled, professional construction companies with impressive track records, strong reputations, and high demand for their services, which have presumably also experienced a claim or two, pay close attention to the insurance provisions in construction agreements. They seek to control and purchase their own Contractors’ All Risks policies, which they regard as protection against the liability imposed on them by the client under the construction contract.
When the client objects to this arrangement, concerns about the consequences often lead contractors to purchase comprehensive Contractors’ All Risks policies alongside the client’s insurance. They may do so even where the client has undertaken to arrange the coverage, preferring not to rely on external commitments or policies outside their full control.
Contractors’ All Risks Insurance Purchased by the Developer
Developers frequently purchase Contractors’ All Risks insurance themselves, as discussed in detail in the section on insurance for developers. This reflects the considerations outlined above, particularly the developer’s overarching responsibility as project owner and its commitments to purchasers or existing property owners, such as in TAMA 38 projects. It also reflects the developer’s interest in controlling the quality of the policy, ensuring that coverage remains in force and premiums are paid.
Replacing a Contractor During Construction
When the developer purchases the Contractors’ All Risks policy, it can replace the construction contractor whenever necessary without affecting coverage or depending on the departing contractor’s insurance. This is critical to managing the project’s insurance risks.
Developers therefore often purchase the policy instead of the construction contractor, under a contractual arrangement that charges the insurance cost to the contractor. Sometimes, however, the developer does so without making any commitment to the contractor, while also requiring the contractor to purchase its own appropriate Contractors’ All Risks policy that responds before the developer’s insurance.
This can create overlapping insurance under the property section, while also providing an additional layer of liability limits under the third party liability and employers’ liability sections.
Partial Contractors’ All Risks Coverage
Sometimes the developer undertakes to purchase Contractors’ All Risks insurance covering only Section A (Property) and Section B (Third Party Liability), while requiring the contractor to assume full responsibility for its employees and those of its subcontractors.
This creates a significant difficulty for the contractor. A Contractors’ All Risks policy comprises three sections forming a single insurance package, and most Israeli insurers do not allow that package to be split so that only one section is purchased.
Purchasing separate or annual employers’ liability insurance may prove problematic. The coverage terms offered under, for example, the BIT 2013 Contractors’ All Risks wording differ from those of a standalone employers’ liability policy. In some cases, purchasing such standalone coverage could prove to be a disastrous mistake.
This article was written by Itzik Simon, the leading construction insurance agency.
Contractors Insurance Policy - by the contractor
As described above, the contractor bears enormous responsibility, which is also expressed in strict performance contracts in which virtually all responsibility lies with him.
Skilled and professional construction companies, with an impressive track record, a 'good reputation' and high demand for their work, who have probably also experienced a claim or two during the projects they have carried out, are sensitive to the insurance clauses in the construction agreements, and strive to control and purchase the 'all risks for contractor work' policies themselves, which from their perspective are intended to protect the responsibilities that the client has imposed on them in the construction contract .
When this is not possible due to the client's opposition, and out of fear of the consequences - often contracting companies themselves purchase comprehensive contractors' insurance policies alongside the client's insurance, even if the client has committed to purchasing all-risk insurance for the contracting work itself, out of a preference not to rely on external obligations or insurance that are not under their full control.
Contractors Insurance Policy - by the developer
A contractor insurance policy is often purchased by the developer, see in detail in the chapter on Insurance for Developers, and this is due to all of the above and mainly due to the ultimate responsibility of the developer as the owner of the project and the one who made a commitment to the purchasers and/or owners (such as in TAMA-38 projects), as well as due to the developer's interest in controlling the nature of the policy for insuring contractor work, its very existence, payment, etc.
Replacing a contractor during the execution of project work
When the entrepreneur purchases the insurance for the construction work, he can also change the execution contractor whenever he is required to do so, without it having an impact on the insurance coverage and without depending on the insurance of the outgoing contractor - and this is a critical issue for the conduct and management of insurance risks in the project.
Therefore, the construction developer often purchases all-risk contractors insurance for the project instead of the construction contractor, by way of a contractual agreement on the matter and charging the construction contractor the cost of the insurance, but sometimes he does so without committing to the construction contractor and by way of a requirement for the contractor to purchase suitable contractors insurance for himself that will constitute primary insurance and precede the developer's insurance. Thus, sometimes 'double insurance' occurs in the property section - but on the other hand, an additional layer of insurance amounts is achieved in liabilities: third party and employers' liability.
Partial Contractors Insurance
Sometimes the entrepreneur undertakes to purchase all-risk insurance for contractor work himself, but his obligation is for Chapter A (property) and Chapter B (third party) only, and he demands from the contractor full responsibility for his employees and the employees of his subcontractors. In this situation, the contractor finds himself in a significant difficulty, since the 'all-risk insurance for contractor work' policy with its three chapters constitutes one complete insurance package, and most insurance companies in Israel do not allow 'unpacking the package' and purchasing only a specific chapter.
Purchasing separate and/or annual employers' liability insurance may prove problematic , as the coverage terms offered as an example in the 2013 Bit policy for contractor work are not similar to the terms of an independent employers' liability insurance policy, and sometimes purchasing such independent insurance may prove to be a fatal mistake.
This article was written by Itzick Simon – the leading construction insurance agency.
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