Property insurance on which work is being done as part of renovation or contracting work
Dec 22, 2020
By: Miri Levhar, VP, Itzick Simon - the leading construction insurance agency
Construction work on existing buildings can cause damage to existing property (the property being worked on). For example, damage resulting from adding a balcony to a residential building, damage to the ceilings of upper floors when building a rooftop apartment unit, damage to roofs due to the installation of solar systems, and even damage during the renovation of an apartment/office/store.
Unlike work on empty land where there is no concern about damage to the land on which construction is being carried out, when the work is carried out on an existing structure, the risk is real and present.
Unfortunately, experience shows that many developers or renovators do not take this into account when purchasing insurance for a project. We often encounter policyholders who rely on labor value insurance only and/or on a minor and problematic extension that exists in the contractor's policy and is called: the "property being worked on" extension. This is a mistake that should be shined in a bright spotlight.
By: Miri Levhar, VP, Itzick Simon - the leading construction insurance agency
Construction work on existing buildings can cause damage to existing property (the property being worked on). For example, damage resulting from adding a balcony to a residential building, damage to the ceilings of upper floors when building a rooftop apartment unit, damage to roofs due to the installation of solar systems, and even damage during the renovation of an apartment/office/store.
Unlike work on empty land where there is no concern about damage to the land on which construction is being carried out, when the work is carried out on an existing structure, the risk is real and present.
Unfortunately, experience shows that many developers or renovators do not take this into account when purchasing insurance for a project. We often encounter policyholders who rely on labor value insurance only and/or on a minor and problematic extension that exists in the contractor's policy and is called: the "property being worked on" extension. This is a mistake that should be shined in a bright spotlight.
Risk and insurance solution
With regard to the problematic extension in the policy for insurance of contractor work , this is an extension that is purchased under the heading of "property on which work is being done," and it is for a low amount that does not always reflect the actual risk . Similarly, the aforementioned risk is not covered in the chapter concerning third parties, since the existing structure can be insured under Chapter A (Property) in the contractor's policy and is therefore categorically not considered a third party .
The appropriate and correct insurance solution for insuring a structure on which work is being done can be expressed in two main options:
- Increasing the insurance amount in the policy for "property being worked on" – conducting focused negotiations with the insurance company to increase the insurance amount in this section. The amount to be determined should reflect the risk and be based on both the relevant work and additional parameters such as the condition of the existing structure.
- Insurance of the existing structure within the policy's main insurance amount – purchasing insurance for the existing structure by providing the policy's main insurance amount by including the cost of building the existing structure in the event of total damage and/or part of the amount on a "first damage" basis. As is customary, for example, in any urban renewal insurance project according to TAMA 38/1-3 (reinforcement and expansion work carried out on an existing structure).
Please note that this is not a trivial matter. On the contrary, it is a critical and paramount issue. At our insurance agency, which has been dealing with construction insurance for over 30 years, we unequivocally recommend to our clients to insure the existing structure in all matters related to strengthening work on an old building and/or adding floors to its roof, preserving buildings, and massive renovation work on an existing structure. Sometimes, if the client refuses to purchase insurance for the existing structure, we will not be prepared to insure the project.
With regard to the problematic extension in the policy for insurance of contractor work , this is an extension that is purchased under the heading of "property on which work is being done," and it is for a low amount that does not always reflect the actual risk . Similarly, the aforementioned risk is not covered in the chapter concerning third parties, since the existing structure can be insured under Chapter A (Property) in the contractor's policy and is therefore categorically not considered a third party .
The appropriate and correct insurance solution for insuring a structure on which work is being done can be expressed in two main options:
Increasing the insurance amount in the policy for "property being worked on" – conducting focused negotiations with the insurance company to increase the insurance amount in this section. The amount to be determined should reflect the risk and be based on both the relevant work and additional parameters such as the condition of the existing structure.
Insurance of the existing structure within the policy's main insurance amount – purchasing insurance for the existing structure by providing the policy's main insurance amount by including the cost of building the existing structure in the event of total damage and/or part of the amount on a "first damage" basis. As is customary, for example, in any urban renewal insurance project according to TAMA 38/1-3 (reinforcement and expansion work carried out on an existing structure).
Please note that this is not a trivial matter. On the contrary, it is a critical and paramount issue. At our insurance agency, which has been dealing with construction insurance for over 30 years, we unequivocally recommend to our clients to insure the existing structure in all matters related to strengthening work on an old building and/or adding floors to its roof, preserving buildings, and massive renovation work on an existing structure. Sometimes, if the client refuses to purchase insurance for the existing structure, we will not be prepared to insure the project.
In conclusion
As much as they are a challenge from an operational and engineering perspective, construction work on existing buildings also presents an insurance challenge. In the absence of adequate insurance, the developer/contractor may find himself faced with a broken trough on a given day.
Therefore, one should not rely solely on the standard extension that exists in the contractor's policy and should specifically address the full range of relevant risks.
The suggestions presented in this article (increasing the amount of coverage by expanding "property on which work is being done" and insuring the existing structure within the structure insurance in the policy) may provide a suitable solution. Of course, it is advisable to consult with an insurance agency that specializes in construction insurance, because each project is different from the previous one and it is important to examine the issue on its own merits.
As much as they are a challenge from an operational and engineering perspective, construction work on existing buildings also presents an insurance challenge. In the absence of adequate insurance, the developer/contractor may find himself faced with a broken trough on a given day.
Therefore, one should not rely solely on the standard extension that exists in the contractor's policy and should specifically address the full range of relevant risks.
The suggestions presented in this article (increasing the amount of coverage by expanding "property on which work is being done" and insuring the existing structure within the structure insurance in the policy) may provide a suitable solution. Of course, it is advisable to consult with an insurance agency that specializes in construction insurance, because each project is different from the previous one and it is important to examine the issue on its own merits.
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