Insurance policies for contractors: contractor, client, developer – and everything in between
Sep 6, 2017
The concept of ' contractors' insurance ' is inclusive and hides behind it an idea - and a list of relevant contractor insurance policies, each of which is designed to address a different type of risk inherent in the contractor's development:
✔ All-risk insurance for contracting work
It is the most common of the insurance policies accepted for insuring contractors, and is often the only one on the list of policies that the contractor purchases.
✔Professional liability insurance and product liability insurance
Which can be purchased alongside the contractor's insurance - these constitute additional coverage for the contractor, complementary and important defensive walls that currently constitute financial millstones, but become pure gold in the event of an insurance event (as can be said for any insurance policy).
Execution contractors and contractual contractors: the system of pressures and responsibilities
Construction contractors in Israel are engaged in the execution of projects for clients of all kinds: public bodies such as: government ministries, municipalities and local authorities, the Ministry of Defense, the Ministry of Housing, hospitals, etc., but also for the business and private sector: entrepreneurial companies, purchasing groups or simply private individuals. Construction contractors and contractual contractors are often subject to a complex system of pressures: profit margins so low that they unconsciously cause losses, complex calculations (and errors) of execution costs and inputs, meeting schedules, a shortage of manpower in general and skilled manpower in particular, close, strict and rigid supervision (often even by the client), and alongside all of this: business competition, fighting to win the execution of each project or tender and enormous financial risks against the backdrop of a set of 'flat rate' contracts that characterize most engagements with a construction contractor or contractual contractor, contracts in which any mistake may lead to To economic collapse.
All of this creates a difficult reality for contractors.
As if that weren't enough - on the bustling and dynamic construction site, the contractor also has tort and criminal liability and risks of accidents, damage or injury during and after execution - and against this background, the importance that must be attributed to a proper system of contractor insurance, all-risk insurance for contractor work and in general - risk management in the construction project is clear, since a contractor insurance system constitutes a basic and important defensive wall without which the contractor may remain exposed in the event of an unexpected event, damage to the project, injury to an employee or a third party - and even lead him to a financial disaster.
The described set of pressures, lack of awareness, and low profit margins sometimes create an incorrect decision-making system regarding contractors' insurance, with the tendency of the 'average contractor' to save on financial costs in general - and on the issue of insurance in particular, often by purchasing partial, incomplete, or unprofessional contractors' insurance policies that do not match the risks of the project and the contractor, while emphasizing the 'price line' instead of the quality and scope of the insurance coverage.
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 Itzik Simon – the leading construction insurance agency.
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