The most common insurance mistake made by developers in construction projects
Mar 26, 2026
By Itzick Simon, in collaboration with Adv. Lior Akai
In many construction projects, the same pattern repeats itself: under the agreement with the executing contractor, the developer stipulates that the contractor will be the one to procure the Contractors’ All Risks (CAR) insurance policy for the project.
At first glance, this appears to be a standard arrangement in the industry. In practice, however, this is often where one of the most common insurance mistakes made by developers in construction projects lies.
In most projects, developers do make an effort to regulate the insurance aspect in detail. The construction agreement typically includes a structured insurance appendix defining the project’s insurance requirements, and the contractor undertakes to purchase the required policies and provide a certificate of insurance signed by the insurance company.
However, even when such a mechanism exists and is contractually well-organized, the project’s primary policy is still purchased by the contractor, who remains the policyholder.
This means that control over the policy, its terms, and the actual management of insurance events is not in the hands of the developer.
This gap between the developer’s responsibility in the project and their control over the insurance framework often becomes apparent only when an incident occurs at the construction site.
The case that illustrates the problem
In one of the residential projects carried out under TAMA 38/1 (strengthening of an existing building), a stability issue was discovered in one of the building’s structural elements during the structural and reinforcement works.
Work on site was immediately halted, and engineers were called in to examine the case. Following their assessment, it was determined that part of the completed work needed to be dismantled, and additional strengthening and repair works had to be carried out.
The damage to the works themselves was reviewed under the Contractors’ All Risks (CAR) policy purchased by the contractor. However, the incident did not end there.
The apartment purchasers raised claims alleging that the failure stemmed from faulty design and inadequate supervision of the execution. Within a short time, a claim was filed against several parties simultaneously: the executing contractor, the designer, the project manager, and the developer.
When such an event occurs, the physical damage to the works themselves may indeed be examined under the Contractors’ All Risks policy. However, at this stage, additional questions often arise: who is responsible for the event, how the claim is managed מול the insurance company, and what is the scope of coverage in relation to the allegations directed at the various parties involved in the project.
When the policy is purchased by the contractor and the contractor is the policyholder, control over the conduct מול the insurance company and the management of the insurance process is not in the hands of the developer. In such a situation, a gap may arise between the developer’s interests and the way the insurance event is actually handled.
Another mistake stems from the assumption that a contractor's work policy also covers planning errors.
In practice, these are two different areas of insurance.
A contractor's work policy is designed to cover sudden and unforeseen physical damage to work or property on the construction site.
In contrast, professional liability insurance is designed to cover third-party claims related to professional negligence.
In the construction industry, there are two main types of such insurance:
Professional liability insurance for engineering professions - such as planners, engineers and inspectors.
Professional liability insurance for contractors - which relates to actions performed within the framework of the contractor's profession.
These are different coverages that address different exposures in the project.
Mixing contractor work insurance and professional liability
Why is it right for the entrepreneur to purchase the contractor's insurance policy himself?
In the construction industry, it is often accepted that the executing contractor is the one who purchases the contractor's insurance policy. In practice, in many projects, it is more appropriate for the developer to own the policy.
When the developer purchases the policy, the project's insurance structure is designed from the perspective of the entire project and not from the perspective of the executing contractor alone.
Among the main reasons for this are:
1. Control over the insurance amounts in the policy
When the contractor purchases the policy, the insurance amount is sometimes determined by the value of the contractor's contract alone. In practice, the value of the project may be higher, and sometimes significantly higher. In addition, there are sometimes construction inputs that the developer purchases directly and are not included in the contractor's contract, such as systems, equipment, special elements or additional work performed as part of the project. When the developer is the policyholder, it is possible to ensure that the insurance amount reflects the full value of the work in the project.
2. Control over the structure of insurance coverage
When the developer is the policyholder, the project's insurance structure, the necessary extensions, and the limits of liability can be defined in advance according to the project's characteristics and the risks involved. This way, the policy can be tailored to the needs of the entire project, not just the insurance capacity of the executing contractor.
3. Determining broad and appropriate insurance specifications for the project
Sometimes expanding insurance coverage involves a higher cost. Certain extensions, higher liability limits, or broader insurance terms are not always in line with the economic interest of the executing contractor, who seeks to reduce the cost of insurance for him. When the developer is the policyholder, it is possible to determine a broad and appropriate insurance specification for the project according to the developer's level of risk and exposures.
4. Insurance continuity in the event of a change of contractor
In the reality of the construction industry in Israel, replacing a contractor during a project is not an uncommon occurrence. This may occur due to the contractor's financial difficulties, bankruptcy, the developer's dissatisfaction with the quality of the work, disputes between the parties, or other circumstances that develop during the project. When the policy is purchased by the contractor and he is the policy owner, replacing the contractor may create insurance complexity and even the need to replace the policy or re-arrange insurance for the remainder of the work. When the developer is the policy owner, the insurance can be continued continuously and the new contractor can be added to the existing policy.
5. Central management of insurance events
When an insurance event occurs in a project, complex handling is sometimes required with the insurance company, appraisers, professional consultants, and other parties. When the developer is the policyholder, he controls the conduct with the insurance company and the manner in which the claim is handled. This ensures that the insurance event is managed in accordance with the interests of the project and the developer.
6. Control over the policy maintenance period
A contractor's work policy usually also includes a maintenance period after construction is completed and the work is handed over. During this period, problems may be discovered in the work that has been performed, and sometimes repair work is also carried out. When the developer is the policyholder, a maintenance period and scope of coverage can be determined that are appropriate for the project's exposures even after the building is handed over.
However, this structure also has several aspects that must be taken into account:
1. Responsibility as the policyholder
When the entrepreneur is the policyholder, he is responsible to the insurance company for complying with the terms of the policy and paying the premium.
2. Carrying self-participations
In the event of a damage event, the deductible will generally apply to the policyholder. However, in many projects, it is customary to stipulate in the agreement with the contractor that the contractor will bear the deductible cost when the incident originates from his work.
In October 2025, after a regulatory process that lasted several years, a comprehensive amendment to the occupational safety regulations in the construction industry was published in Reshumot.
It was determined that the new regulations will enter into force after a 12-month preparation period, that is, in October 2026.
The amendment is intended, among other things, to clarify and expand the responsibilities imposed on the parties involved in the project, including the client and the developer.
This means that responsibility for safety on the construction site is no longer seen as the sole responsibility of the contractor. According to the new regulations, the developer is also responsible for safety, with a host of duties, including: appointing a safety controller on his behalf who will be his long arm on the site regarding safety, allocating resources for safety, ensuring that a site safety plan is in place and implemented, and more. All of this is in addition to the tasks that have always faced him, relating to project management, the selection of contractors, and the supervision of the work.
It is important to emphasize that the regulations do not distinguish between private entrepreneurs and public contractors. Local authorities, government companies, and government ministries acting as contractors on construction projects are also considered contractors and entrepreneurs for the purposes of the regulations, and the obligations imposed under the regulations also apply to them.
This regulatory reality further emphasizes the need for the developer to be clearly and fully insured, while fully safeguarding his interests within the project's insurance system.
The new situation: changing safety regulations and its implications for the developer's responsibility
Is it enough for the performing contractor to purchase a contractor work insurance policy?
In many projects, the executing contractor is required to purchase the policy. However, when the contractor is the policyholder, control over the insurance structure and management of insurance events is not in the hands of the developer. In some cases, this may create a gap between the developer's exposures and the insurance coverage actually purchased by the contractor.
What is the difference between contractor work insurance and professional liability insurance?
Contractors' insurance is designed to cover physical damage to construction work or property on site. In contrast, professional liability insurance is designed to cover claims relating to professional negligence. In the construction sector, there are two main types of such insurance: professional liability insurance for engineering professions - such as planners, engineers and supervisors - and professional liability insurance for contractors, which relates to activities carried out within the framework of the contractor's profession. These are different coverages that provide a response to different exposures in a project.
How is the insurance amount determined in a contractor work policy?
The insurance amount should reflect the total value of the work in the project. When the contractor purchases the policy, the insurance amount is sometimes determined based on the value of the contractor's contract only, while in reality the value of the project may be higher and also include construction inputs that the developer purchases directly and sometimes also work by contractors on his behalf.
What happens if the contractor is replaced during the project?
Replacing a contractor during a project is not a rare phenomenon in the construction industry, on the contrary. In certain types of projects, such as urban renewal, replacement occurs in approximately 50% of projects. When the contractor is the policyholder, this may create insurance complexity. However, if the developer is the policyholder, the project's insurance can be continued continuously even if the performing contractor changes.
Do the new safety regulations affect entrepreneurs?
Yes. The amendment to the Construction Industry Occupational Safety Regulations was published in October 2025 and will come into effect in October 2026. The regulations also clarify the responsibilities of work orderers and developers, and not just the executing contractor. Therefore, it is important for the developer to carefully examine the project's insurance system and the coverages required for it.
Frequently asked questions from entrepreneurs about contracting work insurance
Summary
In many construction projects, it may appear that the insurance aspect is well regulated: the construction agreement includes a detailed insurance appendix, the contractor undertakes to procure the required policies, and provides a certificate of insurance signed by the insurance company.
However, in quite a few cases, it is דווקא this standard contractual structure that creates the problem.
When the executing contractor is the policyholder of the Contractors’ All Risks (CAR) policy, control over the policy, its terms, and the manner in which insurance events are managed is not in the hands of the developer—even though, in practice, the developer bears a significant portion of the project’s economic and legal exposure.
This gap may be reflected in the alignment of insurance sums with the project’s actual value, the scope of coverage, the way claims are handled, the continuity of coverage in the event of contractor replacement, and the extent of coverage during the maintenance period following project completion.
In addition, the amendment to the safety regulations, expected to come into force in October 2026, further emphasizes the responsibility imposed on employers and developers with respect to safety management on construction sites.
In this reality, the question of the project’s insurance structure is no longer merely a technical matter, but an integral part of the developer’s overall risk management.
Quite often, it is דווקא the standard contractual clause—under which the developer requires the contractor to procure the Contractors’ All Risks policy—that distances the developer from control over one of the most important tools for protecting the project.
In many cases, a structure in which the developer is the policyholder of the Contractors’ All Risks policy makes it possible to design the insurance from the perspective of the project as a whole, tailor the coverage to the actual risks of the works, and maintain full control over the management of insurance events throughout the project lifecycle.
About the authors
Itzick Simon is the founder and CEO of Itzik Simon – Construction Insurance Agency, considered one of Israel’s leading specialized agencies in construction insurance and risk management for engineering projects. For nearly four decades, the agency has supported developers, contractors, and construction companies in complex projects, assisting in the planning of insurance programs and risk management frameworks for real estate, infrastructure, and urban renewal projects.
Adv. Lior Akai is the Head of Engineering Insurance at Itzik Simon’s firm and an expert in insurance law and engineering risks in the construction industry. He previously served as Head of the Engineering Department at Hachshara Insurance Company, as well as an engineering team leader at Migdal Insurance Company.
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