Do you have contractors insurance? It is not designed to cover professional liability for crane inspectors
Oct 12, 2017
Article by Itzick Simon and Attorney Shlomi Hadar from the firm of John Geva - Hadar & Co.
Have you ever encountered the demand of the engineers who inspect the cranes for you to sign a document exempting you from liability and indemnifying the contractor?
This is just one example of an attempt to shift the responsibility of others onto you, and onto the professional liability insurance under your contractors' insurance.
Therefore, Itzick Simon, Attorney Shlomi Hadar from the Geva Hadar & Co. law firm, and I met to review the issue and try to summarize the current situation as well as present options for dealing with these demands.
A new phenomenon in our region! In recent months, we have received inquiries from many contractors who are required to sign a document with the crane inspectors exempting them from liability in the event of an accident caused by using a crane on the construction site.
All of this is happening, as is well known, against the backdrop of the high number of crane accidents, the existence of a very small number of certified inspectors in relation to the number of cranes present at construction sites throughout the country, and especially against the backdrop of the well-known and clear fact that in a situation of an accident and a lawsuit, each party tries to shift the blame to the other party or at least divide the damage between a number of "pockets" and the guilty parties.
It's not the inspectors, it's the insurance coverage.
and the costs and contributions they are required to bear
Crane inspectors, who are engineers by profession and trained to perform crane inspections, are naturally among the first to catch fire. Any malfunction or breakdown translates into some kind of liability imposed on them. Due to the high number of claims against them, insurance companies have drastically increased insurance premiums for crane inspectors and, according to the inspectors, have also increased deductibles to levels of hundreds of thousands of shekels per incident.
In principle, the crane inspectors' requirement for the contractor to sign a document exempting them from liability does not reduce their legal liability.
The document constitutes a kind of "indemnity agreement" between the inspector and the contractor, in which if the conditions in the indemnity agreement are met, the contractor is required to bear the inspector's expenses or activate his contractors' insurance policy or professional liability insurance.
It has already been stated that these insurances will not cover such an indemnity claim.
Thus, by signing such a document, the contractor ostensibly replaces the insurance companies, which, as mentioned, due to the increased risks in the field, are prepared to insure the inspector at best under conditions that are very onerous for joining, and at worst - leaving the inspector exposed to a high deductible or, worse yet, not prepared to insure him at all.
The tester is not exempt from responsibility, but the issue is not simple.
The indemnity letter does not exempt the examiner from civil or criminal liability and, as mentioned, "only" provides him with an additional financial means to rely on if a risk materializes.
In addition, it is not inevitable that upon implementation of the indemnity letter, legal questions and disputes will arise regarding its interpretation, applicability, and even questions and concerns as to whether, given the fact that crane inspections are required by law and are not merely a voluntary choice of contractors, the inspectors' requirement (of which there are many) is consistent with public policy and how this is consistent with the need to ensure that the inspectors will perform their work faithfully and professionally without independence or reliance on indemnity from the client.
Article by Itzick Simon and Attorney Shlomi Hadar from the firm of John Geva - Hadar & Co.
Have you ever encountered the demand of the engineers who inspect the cranes for you to sign a document exempting you from liability and indemnifying the contractor?
This is just one example of an attempt to shift the responsibility of others onto you, and onto the professional liability insurance under your contractors' insurance.
Therefore, Itzick Simon, Attorney Shlomi Hadar from the Geva Hadar & Co. law firm, and I met to review the issue and try to summarize the current situation as well as present options for dealing with these demands.
A new phenomenon in our region!
In recent months, we have received inquiries from many contractors who are required to sign a document with the crane inspectors exempting them from liability in the event of an accident caused by using a crane on the construction site.
All of this is happening, as is well known, against the backdrop of the high number of crane accidents, the existence of a very small number of certified inspectors in relation to the number of cranes present at construction sites throughout the country, and especially against the backdrop of the well-known and clear fact that in a situation of an accident and a lawsuit, each party tries to shift the blame to the other party or at least divide the damage between a number of "pockets" and the guilty parties.
It's not the inspectors, it's the insurance coverage.
and the costs and contributions they are required to bear
Crane inspectors, who are engineers by profession and trained to perform crane inspections, are naturally among the first to catch fire. Any malfunction or breakdown translates into some kind of liability imposed on them. Due to the high number of claims against them, insurance companies have drastically increased insurance premiums for crane inspectors and, according to the inspectors, have also increased deductibles to levels of hundreds of thousands of shekels per incident.
In principle, the crane inspectors' requirement for the contractor to sign a document exempting them from liability does not reduce their legal liability.
The document constitutes a kind of "indemnity agreement" between the inspector and the contractor, in which if the conditions in the indemnity agreement are met, the contractor is required to bear the inspector's expenses or activate his contractors' insurance policy or professional liability insurance.
It has already been stated that these insurances will not cover such an indemnity claim.
Thus, by signing such a document, the contractor ostensibly replaces the insurance companies, which, as mentioned, due to the increased risks in the field, are prepared to insure the inspector at best under conditions that are very onerous for joining, and at worst - leaving the inspector exposed to a high deductible or, worse yet, not prepared to insure him at all.
The tester is not exempt from responsibility, but the issue is not simple.
The indemnity letter does not exempt the examiner from civil or criminal liability and, as mentioned, "only" provides him with an additional financial means to rely on if a risk materializes.
In addition, it is not inevitable that upon implementation of the indemnity letter, legal questions and disputes will arise regarding its interpretation, applicability, and even questions and concerns as to whether, given the fact that crane inspections are required by law and are not merely a voluntary choice of contractors, the inspectors' requirement (of which there are many) is consistent with public policy and how this is consistent with the need to ensure that the inspectors will perform their work faithfully and professionally without independence or reliance on indemnity from the client.
So what is the contractors' solution to the inspectors' demand?
Many contractors who have contacted us have asked us to authorize them to sign the document. Regarding: Please expand the contractor's insurance policy to also include the liability of the certified inspector. Is this possible? The answer is: No.
The insurance policy for contractor work allows the name of the insured to be expanded to a variety of parties who take part in the execution of the project work. See the article below on the subject: Defining the name of the insured in a contractor insurance policy , however - it does not allow the inclusion of engineers, planners, architects, consultants, etc., who are required to have their own professional liability insurance, unless they are employees of the main insured.
Since the professional liability of crane inspectors is that of engineers, it is not possible to expand the contractor's work policy to include their liability, given the nature of the policy and the opposition of the insurance companies, who wish to be free to sue anyone who is responsible for an event in which they are forced to "open their pockets." Opening the contractor's policy to this type of engineer also constitutes a dangerous precedent for them.
In light of the above, it appears that there is no insurance solution to the issue within the framework of contractor work insurance policies, and therefore the heads of the Israel Builders Association have approached the government in an attempt to find a regulatory solution to the problem, which at this stage "sticks a stick in the wheels of realizing the construction industry's goals of increasing the rate and quantity of construction completion and delivery of apartments for use, and exposes both the inspectors and the contractors when the risks materialize that may originate from the inspection of the cranes, an inspection that is required by law.
1. Employing the inspector as an employee. In accordance with the special conditions in the policies prepared in our office, a possible solution is to directly employ the inspectors as employees and, on this occasion, expand their role to perform safety inspections and audits related to both the technical suitability of the crane and the manner and procedures of its operation on site, with a greater frequency than currently exists.
Disadvantages: High costs, a shortage of testers qualified to perform the role, along with their natural motivation to act independently. In light of this, it is doubtful whether the solution of converting testers to employee status is practical.
Advantages: A simple calculation shows that for 2 cranes that are required to undergo 2 inspections per year each - the inspector can be employed at a low monthly salary and the inspector's personal exposure - and thus the contractor's exposure who is required to sign indemnity letters - is greatly reduced. Worth considering .
2. Intervention by the insurance regulator in an attempt to regulate the issue . Such intervention seems problematic, we see no chance of such intervention, time will tell .
In conclusion:
There is no doubt that the liability imposed on inspectors by law, alongside the requirements of insurance companies to provide adequate coverage against possible risks, makes the field "dangerous," and the sharing of risks ostensibly constitutes a solution to this. However, in indemnity agreements in which all liability is transferred to the contractor, the contractor becomes the one who takes all the risk from the inspections, the one who is supposed to be responsible for them and their quality - the inspector, and this also creates an absurdity.
Since, as of today, insurance policies still leave inspectors "exposed in the lurch," there seems to be no satisfactory solution other than employing them as employees or finding a more sophisticated insurance solution that will no longer justify unacceptable demands for compensation.
Possible proposed solutions until an adequate response is provided to the problem that has arisen.
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