Insurance for contractor work in renovations – 6 important rules
Jul 31, 2019
By: Raz Ohana
It has become routine. The media is full of stories about renovators who got into trouble after embarking on a major renovation adventure without following a few very basic rules. Complications that crashed on the heads of normal people from the community, who were forced to deal with fateful legal and tortious consequences for the first time in their lives.
The data is also not ambiguous. According to official reports from the Ministry of Labor, one in four fatal work accidents in the construction industry occurs during the renovation of an existing structure. This is connected to attempts by the state and various bodies to regulate and supervise the industry. Whether in the regulation approved in May 2019 by the Ministry of Construction and Housing, according to which renovation contractors will also be required to obtain a work license as registered contractors and pass a professional examination, or in the "Renovators Law," which almost passed the Knesset, and would have imposed a year's liability on renovation contractors for their work.
By: Raz Ohana
It has become routine. The media is full of stories about renovators who got into trouble after embarking on a major renovation adventure without following a few very basic rules. Complications that crashed on the heads of normal people from the community, who were forced to deal with fateful legal and tortious consequences for the first time in their lives.
The data is also not ambiguous. According to official reports from the Ministry of Labor, one in four fatal work accidents in the construction industry occurs during the renovation of an existing structure. This is connected to attempts by the state and various bodies to regulate and supervise the industry.
Whether in the regulation approved in May 2019 by the Ministry of Construction and Housing, according to which renovation contractors will also be required to obtain a work license as registered contractors and pass a professional examination, or in the "Renovators Law," which almost passed the Knesset, and would have imposed a year's liability on renovation contractors for their work.
The important definition of the "construction operation"
Now that we have defined the problem, here are some possible solutions. Read some important aspects regarding insurance and liability in building renovation:
Construction operator – According to Israeli law, the “construction operator” can be one of the following: a main contractor or the work orderer. When the work orderer, the client, does not contract with a main contractor, he is the one defined as the construction operator. Yes, even if he lacks any experience in renovations and even if he is not present on site except for sporadic visits. In order for the renovating family not to be defined as the “construction operator”, it must enter into a written contract with a contractor with an appropriate classification who will take on the project as the “main contractor”, and specify in it that the contractor coordinates the implementation of all safety arrangements required on site during the work.
Appointing a registered contractor to carry out the work – The construction operator is ultimately responsible for choosing the parties with whom he contracts for the planning and execution of the construction work. The regulations state that he must contract with suitable professionals, who have the necessary qualifications for the execution of the work. The client has a clear obligation to select suitable and competent professionals, and to avoid contracting with negligent planners or operators.
Foreman – A foreman is not just an executive function. It is a requirement by law. For any repair or addition to an existing structure, and of course for work involving foundations, removal of retaining walls, excavations under a structure, and the like, the law and regulations state that a registered contractor must be appointed and that the registered contractor and/or the construction contractor will appoint a foreman (see instructions for appointing a foreman at the Ministry of Labor, at the link here).
Contractors' insurance by the contractor - Renovators who are facing a large-scale renovation would be wise to purchase contractor insurance in advance that will be registered in their name (the contractor). Although it is also possible to verify that the contractor or contractors have purchased such insurance, it is recommended (to put it mildly) not to blindly rely on these policies. First, contractor insurance is a complex insurance that the renovating family will have difficulty maintaining even if presented with such a policy. Second, many renovations create situations in which contractors change, and to the extent that there is a dependence on the contractor insurance of a specific contractor, the contractor may find himself facing a broken trough. The solution to this is therefore to purchase contractor insurance in the name of the contractor, from an insurance agent skilled in this field of insurance.
Important rules of thumb in renovation insurance
Important rules of thumb (continued)
Existing building insurance – When performing massive renovation work on an apartment or building, various and substantial damages may be caused to the existing structure. It is necessary to ensure that the amount of insurance in the insurance policy for the contractor's work reflects not only the cost of the renovation but also the cost of building the existing structure. Even if this means paying a higher premium.
Employers' and third-party liability – It is essential to purchase significant insurance amounts for third-party damages and employers' liability in contractor work insurance policies. It is important to understand (and internalize) in this regard that even when a subcontractor's employee is injured on site, he can be considered a third-party victim towards the work customer. These are claims that can amount to huge amounts, especially in an industry where serious and fatal accidents are not uncommon. The claim can include large amounts, both by virtue of the lost years rule and as part of a subrogation claim filed by the National Insurance Institute. We have already encountered a case in which a young couple was forced to deal with such a claim that climbed to the amount of approximately 4.5 million shekels, due to a serious work accident involving a subcontractor employee.
The validity of the insurance if the contractor is not a registered contractor – one of the most complex questions in this matter is the issue of a registered contractor. That is, is a contractor work insurance policy valid only when contracting with contractors who are legally registered? The answer to this is not unambiguous and varies based on many parameters, as well as depending on a series of "sub-questions". For example, what is the necessary classification of the contractor in relation to the work for which he was employed, did the insurance company conduct a survey of the project and indicate in it a reference to the type of contractor, did the terms and conditions of the policy purchased also include provisions regarding the appointment of registered contractors, does the nature and type of work require the appointment of a registered contractor by virtue of the regulations, and more.
In conclusion,
Renovating a property, especially a thorough and comprehensive renovation, is no small matter. Renovators are usually not professionals, and are usually not even familiar with the tip of the iceberg of the issue from an insurance perspective. Striving for the best price is therefore not the be-all and end-all.
Significant renovation work must be carried out with proper preparation on all levels, including and especially the insurance level.
Renovating a property, especially a thorough and comprehensive renovation, is no small matter. Renovators are usually not professionals, and are usually not even familiar with the tip of the iceberg of the issue from an insurance perspective. Striving for the best price is therefore not the be-all and end-all.
Significant renovation work must be carried out with proper preparation on all levels, including and especially the insurance level.
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