Pandemic exception - contractors and developers are at risk

Mar 24, 2021

By: Itzik Simon

Following inquiries and requests from insurance companies, the Insurance Commissioner at the Ministry of Finance dramatically approved for insurance companies the inclusion of a “pandemic exclusion” in contractor’s all-risk insurance policies. The Commissioner’s decision to allow insurers to add this exclusion changes the rules of the game and creates both insurance and liability exposure for contractors and developers in the construction sector, directly in the context of the COVID-19 pandemic and potential future pandemics. This follows the fact that insurance companies have added the pandemic exclusion to new contractor’s all-risk policies from the date of approval.

What is a “pandemic exclusion”?

A pandemic exclusion in a contractor’s policy primarily concerns the liability sections of the policy: third-party liability and employer liability. This means that if someone contracts COVID-19 on a construction site and it is proven that the infection could have been prevented if the developer or contractor had taken “all reasonable measures” available to prevent the risk, there is potential exposure to a liability claim.

COVID-19 infection can result in death or severe medical damages, constituting a bodily injury claim that can reach extremely high sums. The “pandemic exclusion” clause in the contractor’s policy leaves contractors and developers fully exposed and without adequate insurance coverage for such claims.

By: Itzik Simon

Following inquiries and demands from insurance companies, the Insurance Supervisor at the Ministry of Finance dramatically approved for insurance companies to include a pandemic exception in contractor work insurance policies. The Supervisor's decision to approve for insurance companies to add the exception changes the rules of the game and creates insurance-damage exposure for contractors and developers in the construction industry in direct connection to the coronavirus pandemic and future pandemics. This is in light of the fact that insurance companies have added a " pandemic exception " to new contractor work insurance policies, as of the date of approval.

What is an "epidemic exception"?

The pandemic exception in a contractor's policy essentially concerns the liability sections of the contractor's policy: third party and employer liability. It follows from this that if a person becomes infected with the coronavirus on a construction site, and it is proven that the infection could have been avoided if the developer or contractor had taken "all reasonable measures" available to them to prevent the risk, then there is exposure to a tort claim.

Infection with the coronavirus may cause death or severe medical damage, and this is a personal injury claim that can escalate to huge amounts. The "epidemic exception" clause in the contractor's policy places contractors and developers "exposed" and without adequate insurance coverage for claims of this type .

Maintaining employee health

The construction industry was defined as an essential industry and continued to operate (almost) as usual during the coronavirus pandemic. Including during the difficult and complex days of the first lockdown, and including the employment of Palestinian and foreign workers. At the same time, the Ministry of Health issued a long series of guidelines for business owners operating during the pandemic.

When it comes to construction site practices, there is a very high level of responsibility placed on the shoulders of developers and contractors regarding the health of their workers. They must ensure, for example, that:

There are no unnecessary/prohibited gatherings at the construction site.
Employees are careful to maintain distance, practice hand hygiene, and wear masks.
There are no shared meals and each employee uses only personal eating utensils.
There is no "distribution" of drinking bottles, and each employee has a personal drinking bottle.
Disinfect construction sites frequently, especially at the end of each work day.
Disinfection of tools between employees.
Providing frequent training on health issues against the virus and providing written materials in the employees' native language (Chinese, Arabic, Thai, Spanish, etc.).

A pandemic such as the coronavirus can involve the imposition of random lockdowns on the population based on morbidity indicators. Construction sites have dealt with the aforementioned issue during the coronavirus pandemic by significantly expanding overnight accommodation for workers in Israel. Whether on the site itself or in nearby accommodation arrangements such as apartments or hostels.

It is important to remember that in such cases, the employer's responsibility for the health of employees also applies at the end of the workday. Among other things, he must ensure that employees continue to follow all health procedures during rest hours and at night.

The construction industry was defined as an essential sector and therefore continued operating (almost) as usual throughout the COVID-19 pandemic. This included the difficult and complex days of the first lockdown, as well as the continued employment of Palestinian and foreign workers. At the same time, the Ministry of Health issued, in real time, a long series of guidelines for business owners operating under pandemic conditions.

With regard to on-site practices at construction sites, a very high level of responsibility rests on developers and contractors when it comes to safeguarding workers’ health. They must ensure, for example, that:

No unnecessary or prohibited gatherings take place at the construction site.
Workers adhere to social distancing, hand hygiene, and the wearing of face masks.
No shared meals take place, and each worker uses only personal eating utensils.
There is no sharing of drinking bottles, and each worker has a personal bottle.
Construction sites are disinfected regularly, especially at the end of each workday.
Work tools are disinfected when transferred between workers.
Frequent health briefings are conducted regarding virus prevention, and written materials are distributed in the workers’ native languages (Chinese, Arabic, Thai, Spanish, etc.).

A pandemic such as COVID-19 may involve the imposition of sudden lockdowns on the population based on morbidity indicators. During the pandemic, construction sites addressed this challenge by significantly expanding on-site or nearby accommodation for workers in Israel—either directly at the site or through nearby housing arrangements such as apartments or hostels. It is important to remember that in such cases, the employer’s responsibility for workers’ health extends beyond the end of the workday. Among other things, employers must ensure that workers continue to comply with all health guidelines during rest hours and overnight.

TAMA 38 projects – third parties may also be infected

The pandemic exception in the contractor's policy takes on additional significance when it comes to urban renewal projects. Whether in expansion and renovation according to TAMA 38/1, when the tenants continue to live in the place, or in evacuation and construction that takes place - naturally - in the heart of the urban space.

These projects are "exposed" to the presence of third parties such as apartment owners, couriers, professionals, repairmen, visitors, family members, the curious, etc. The presence of a third party at the construction site can lead to the filing of a claim for damages, to the extent that it can be proven that the incident occurred as a result of the contractors or developers failing to adhere to procedures. In this context, it is clear that workers on the site - such as subcontractor employees - will also be considered third parties in a claim against the main contractor.

Exception from the rules, starting when?

A pandemic exception clause currently exists in all new policies issued by insurance companies in Israel starting from the date of approval given to each insurance company by the Insurance Supervisor (starting from the last quarter of 2020). A contractor work insurance policy purchased from the date the insurance company was approved to include it already includes the exception recorded in the policy, and the insurance company is obligated to draw the customer's attention to this. Therefore, contractors and entrepreneurs who purchase this insurance should pay attention to the above issue.