There's no smoke without fire? There are actually insurance benefits.
Jun 4, 2020
By Attorney Shlomi Hadar
John Geva, Shlomi Hadar Law Firm and Mediators
Recently, the Nazareth Magistrate's Court heard a claim for payment of insurance benefits, which was filed following a fire that occurred while performing roof sealing work on a project carried out by the plaintiff, as part of her role as a subcontractor on the project.
The project developer was issued a contractor work insurance policy, which was extended to cover the liability of subcontractors. The policy stipulated, among other things, that "hot work," meaning work involving welding and/or cutting using heat and/or the use of open fire, must be performed in accordance with the defendant's "hot work procedure." The procedure to be followed, according to the policy's provisions, included the following provisions:
Appoint a responsible person, whose job is to ensure that no hot work is performed that is not in accordance with the procedure.
A tour of the area designated for the hot work, before the work begins, by the person responsible, in order to remove flammable materials of any kind, within a radius of at least 10 meters from the location where the work is to be performed, with fixed flammable objects that cannot be moved being covered with a non-flammable covering.
Appointment of a "fire watcher", under the person in charge, who is equipped with appropriate extinguishing means to extinguish the type of flammable materials found in the vicinity of the hot work location, whose role will be to observe the performance of the hot work, and to act immediately to extinguish any ignition that may result from the performance of the work.
A "fire watcher" must be present at the location where the hot work is being performed, from the beginning of the work until at least 30 minutes after the end of the hot work, in order to ensure that no sources of ignition remain on site.
The policy also stipulated that the lack of risk mitigation measures, including their failure to operate, could result in a significant reduction or complete denial of insurance benefits.
The plaintiff also claimed that the cause of the fire was not welding or cutting work at all. The plaintiff also referred to settled case law, which states that the result of violating "risk mitigation provisions" is not a complete postponement of the coverage's entry into force, but rather a proportional payment to the insured.
By Attorney Shlomi Hadar
John Geva, Shlomi Hadar Law Firm and Mediators
Recently, the Nazareth Magistrate's Court heard a claim for payment of insurance benefits, which was filed following a fire that occurred while performing roof sealing work on a project carried out by the plaintiff, as part of her role as a subcontractor on the project.
The project developer was issued a contractor work insurance policy, which was extended to cover the liability of subcontractors. The policy stipulated, among other things, that "hot work," meaning work involving welding and/or cutting using heat and/or the use of open fire, must be performed in accordance with the defendant's "hot work procedure." The procedure to be followed, according to the policy's provisions, included the following provisions:
Appoint a responsible person, whose job is to ensure that no hot work is performed that is not in accordance with the procedure.
A tour of the area designated for the hot work, before the work begins, by the person responsible, in order to remove flammable materials of any kind, within a radius of at least 10 meters from the location where the work is to be performed, with fixed flammable objects that cannot be moved being covered with a non-flammable covering.
Appointment of a "fire watcher", under the person in charge, who is equipped with appropriate extinguishing means to extinguish the type of flammable materials found in the vicinity of the hot work location, whose role will be to observe the performance of the hot work, and to act immediately to extinguish any ignition that may result from the performance of the work.
A "fire watcher" must be present at the location where the hot work is being performed, from the beginning of the work until at least 30 minutes after the end of the hot work, in order to ensure that no sources of ignition remain on site.
The policy also stipulates that the lack of risk mitigation measures, including their failure to operate, may result in a significant reduction or complete denial of insurance benefits.
The insurance company informed the plaintiff that it did not recognize the insurance coverage for the fire event, on the grounds that the plaintiff did not maintain the protective measures required in the policy , and that a "reasonable insurer" would not be willing to insure the project without maintaining the measures.
The plaintiff, who based her claim on approximately 700,000 NIS for fire damage, equipment expenses, alternative financing, and delays in completing the project, claimed that she was not provided with a policy listing "protective measures" for hot work, and that such measures were not listed in the policy, and that the "hot work" procedure was not highlighted in the policy as required.
The plaintiff also claimed that the cause of the fire was not welding or cutting work at all. The plaintiff also referred to settled case law, which states that the result of violating "risk mitigation provisions" is not a complete postponement of the coverage's entry into force, but rather a proportional payment to the insured.
The defendant's claim
The defendant claimed that the plaintiff did not comply with the terms of the policy regarding the protective measures that must be taken to mitigate the risk, and that the fire incident was caused by the use of "open fire" during the heating of waterproofing sheets, when at the time of the incident a single worker was engaged in waterproofing activities alone on the roof of the building, without an assistant or "fire watcher", and contrary to the regulations and guidelines for working with open fire. It further claimed that the work was carried out with "gross negligence", and that performing it with reasonable care was sufficient to prevent the fire. The defendant also claimed that it would not have offered an insurance policy for contractor work in which work with fire is carried out using an open flame, without a fire work procedure, and that the plaintiff was aware, or should have known, of the terms and exceptions in the policy.
The court concluded that the plaintiff did not take protective measures to mitigate the risk, as required by the terms of the policy, since no "responsible person" was appointed to ensure the removal of flammable objects, at the time of the incident a contractor was working alone on the roof of the building, without a "fire watcher" as required, and that a report by a fire investigator who examined the incident and photographs he took indicate that the fire occurred due to the use of open fire, and at that time air conditioner motors and other objects were near the place where the sealing work was performed, contrary to the procedure according to which the place must be "cleaned" of flammable objects.
At the same time, the court referred to the arrangement stipulated in Section 18(c) of the Insurance Contract Law, which allows the insurer to pay the insured, under certain circumstances, part of the insurance benefits, in cases where there is a more expensive insurance alternative that does not include a requirement to mitigate the risk, and all subject to a situation in which a "reasonable insurer" would not have entered into a contract that did not require the taking of that measure.
In that case, the court ruled that the insurance company did not prove the existence of a more expensive alternative insurance policy with the insurance company, which does not include a requirement for protective measures, and there is no evidence that such a policy without protective measures is not marketed by other insurance companies. Therefore, it was determined that since the insurance company did not meet the burden of proof, it must pay the full insurance benefits.
However, the court rejected the plaintiff's claim regarding damages for equipment and alternative financing expenses and delays in completing the project on the grounds that the policy does not cover consequential damage from the insured event, and that in order to establish the "indirect damages" component, she must prove that she was charged or had funds deducted from her account by the developer due to the delay in completing the project, or that she took out a loan to finance the fire restoration expenses, which she did not do.
On the surface, in the case before us, the insured benefited, even though he did not meet the terms of the insurance policy and the duty of protection included in the policy. However, if the insurance company were to prove in this case that in the absence of the unfulfilled condition, the insurance premium would have been more expensive, the insured would have received only a proportional share of the benefits (according to the gap between the premium he paid with the condition and the premium he would have been required to pay without the condition), and if the insurance company were to prove that no insurance company would have insured without the condition, the insured would have received nothing.
The conclusion from this is:
Reducing the terms and conditions to reduce the insurance company's risk should be examined and considered, even at the cost of paying a higher premium.
To the extent that there are conditions such as protective measures intended to reduce the insurer's risk, care must be taken to ensure their existence and to follow procedures, if any, as in the case above, in order to avoid the risk that insurance benefits will be reduced or denied altogether.
