Relying on the customer's insurance - the small print wins
Jul 29, 2018
And this is exactly what happened.
A few months ago, a contractor who had recently started working with us came to me to insure a specific project. He brought with him a policy purchased for another project through a different agency by the project owner, and asked me to review the policy and give my opinion.
It is important to note that this was a signed and valid policy, purchased a few months earlier for a project already underway. What had already occurred could not be undone—only corrected moving forward.
Immediately, certain clauses and exclusions stood out—some of which could have been removed or their severity reduced—but that is not the main issue here.
I quickly realized from the contractor that the project also involved a tower crane. Naturally, it was clear that the insurance needed to include coverage for bodily injury from the use of heavy construction machinery that is not subject to compulsory insurance (and a tower crane falls into this category).
Among all the exclusions—some significant in scope and not generally acceptable regarding crane operations—there was one clause that completely undermined the policy:
“The crane shall be insured under separate third-party liability and employers’ liability insurance, and such coverage shall take precedence over the project insurance.”
A requirement like this essentially means there is no insurance at all!
And the incident that happened happened.
Several months ago, a contractor who had recently started working with us came to me with the goal of insuring a specific project and had an insurance policy in his pocket for another project that was carried out at another agency by the client - and he asked me to review the policy and provide an opinion.
It is important to note that this is a signed and valid policy that was purchased several months earlier for a project that is already in progress, and what has been done cannot be undone, only corrected.
Sections and exceptions that could have been eliminated or reduced in severity immediately came to mind, but these are not what we are dealing with.
I quickly understood from the contractor that a tower crane was also being used on the project.
It was naturally clear to me that the insurance should also include coverage for bodily injury from the use of a crane that is not subject to mandatory insurance (which includes a tower crane).
Among all the exclusions, some of which are significant in their gravity and even unacceptable when it comes to the use of cranes, there was one clause that took the sting out of the insurance policy:
"The crane will be insured with third-party self-insurance and employers' liability, and these insurances will be prior and primary to the insurance of the entire project."
Such a requirement essentially means that... there is no insurance!
Problematic risk
I explained the problem to the contractor, and suggested that he examine the matter with the client and his insurance agent.
Needless to say, such third-party and employer-only liability insurance for a crane operated on a construction site is difficult, if not impossible, to obtain in the Israeli insurance market, outside of the framework of all-risk insurance for contractor work.
One day I will write an entire book about Murphy's Laws in the construction industry, here, as it says in Murphy's Laws - precisely where there was no insurance, an accident occurred.
Several months after our meeting - the crane lifted a load that broke off, fell, and hit and killed one of the workers.
I will not add or expand on details about the unfortunate and sad event for the obvious reasons of client confidentiality and will go straight to the conclusions:
The very unusual and unacceptable clause that the insurance company included in the policy regarding self-insurance for cranes only shows how much the insurance companies are afraid of crane accidents and their insurance.
This also gives rise to the need, during the policy formulation stage, to do everything possible to allay the insurance company's concerns (and there is a lot to do) or to find another insurer.
The construction contractor relies on the insurance policy of the client, without truly being aware of the importance of inspecting it and correcting any defects before starting work.
Perhaps it is purely naive to believe that the client, who is the owner and "senior" in such an engagement, will take good care of the insurance.
"Prerequisites for risk mitigation", "prior and primary insurances" are just the tip of the iceberg of definitions, exceptions, faults and possible pitfalls in the contractor's policy.
In any case, it is recommended not to sign any agreement to a client's contractors' insurance policy without consulting our office, and certainly not to begin work without ensuring that the insurance coverage matches the risks in the project.
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