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Frequent works accidents at construction sites around Israel have led to a dramatic increase in the number of National Insurance Institute subrogation claims against insurance companies, resulting in reinsurers withdrawing from the Israeli market. The National Insurance Institute and the insurance companies need to rethink the way they reconcile, in a similar way to the motor bodily injury sector, to bring reinsurers back to the market.

By Itzick Simon

Section 328(A) of the National Insurance Act provides for the National Insurance Institute to recover benefits it pays from the insurers of third parties who are liable for accidents. A classic example is when someone who is injured in a road accident as part of their work, is entitled to compensation from both the motor insurers (under the Compensation for Victims of Road Accidents Act) and also from the National Insurance Institute.

Israeli law prohibits double indemnity and so any compensation paid by the National Insurance Institute is deducted from the benefits paid by the motor insurers. Section 328(A) opens the door for the National Insurance Institute to recover benefits it has paid from the motor insurers.

In 2018 an arrangement was reached to streamline matters by avoiding the need for the National Insurance Institute to sue the insurance companies for each individual claim, instead, the National Insurance Institute receives a fixed amount, derived from the total annual premium income from motor bodily injury insurance.


A senior official in the Ministry of Finance, who addressed this matter in a parliamentary working committee, defined the former situation as a “highly inefficient mechanism which drains substantial resources from the National Insurance Institute to deal with matters quite unrelated to its core business”.

Implementing the new arrangement was delayed due to political instability and the coronavirus pandemic. It was recently approved (with certain changes) as part of the budget and will be introduced gradually over the course of 2023.

I will now turn to the issue of streamlining reconciliation in the construction insurance sector and explain why, following in-depth professional research, a similar method would also be appropriate for this sector.

The extent of accidents in the construction sector

The construction industry is unfortunately prone to a high frequency of work accidents. According to a 2021 report by the National Safety Authority, some 57% of fatal injuries due to work accidents in Israel occur at construction sites, 28% of which are at sites which are not reported to the authority. The main causes of death at construction sites are falls, being caught in or between objects, electrocution and being struck by an object. Since work accidents at construction sites frequently occur due to negligence, they are clear candidates for subrogation claims. In other words, the National Insurance Institute pays compensation for injury or death due to a work accident claim and then seeks recompense from the culprit and their insurers.

The Safety at Work Regulations provide the legal basis for this, and there is a long list of parties who can be held liable:


Building contractor” – The general contractor, property developer or owner of all or part of the project, employing their own workers or subcontractors. The building contractor company and its foreman have the highest level of responsibility for site safety.

Principal” – The contracting party, who might also be the building contractor.

General contractor” – The company that signs a contract with the principal to perform the construction or civil engineering works.

Subcontractor” – whose workers are sent to the construction site.

Other potential defendants in a subrogation claim are safety officers, supervisors, inspectors, project managers and various other third parties such as suppliers and tradesman operating at the site, and more.

All of these parties can be sued jointly or severally for work accidents, and damages can be apportioned proportionately between them. In a typical case, a court may rule that the subcontractor is liable for 30% of the damages due to failure to supply personal protective equipment, and that the general contractor is liable for 70% due to failure to supervise and monitor subcontractors operating at the site.

It is also worthy to mention that the Ministry of Economy and Industry was recently instrumental in repealing Safety at Work Regulation no. 6, which lists all potential culprits and holds the general contractor and the foreman responsible for the lion’s share of damages due to work accidents, with a view to enacting a new regulation that broadens the liability of other parties, including the principal.

Subrogation claims are the main reason why reinsurers have withdrawn from engineering sector in Israel

In 2017 the State Comptroller issued a scathing report entitled “The National Insurance Institute’s handling of claims against third parties (Subrogation)”.

The report provides an extensive overview of the legal basis for subrogation claims by the National Insurance Institute due to work accidents. According to the findings of the report “Since the National Insurance Institute has been slack in exercising its right to subrogate against insurance companies for some years, it is losing money, the extent of which is estimated to be hundreds of millions of shekels”.

Increasingly frequent claims merely exacerbated matters and lead to a dramatic increase in the number of subrogation claims against parties perceived to be liable for work accidents, and their insurers.

The frequency and severity of National Insurance Institute subrogation claims are the main reason why global reinsurers have limited capacity, restricted covers and increased premiums for Contractors All Risks policies in Israel, with some withdrawing entirely from the market. The huge amounts the insurance companies have paid to the National Insurance Institute are the main reason why the reinsurers, who are still are trying to mitigate their losses from the 2018 underwriting year (mainly due to natural catastrophes and extreme weather events), have lost interest in the Israel market.


National Insurance Institute subrogation claims in Israel have created significant challenges for reinsurers for several reasons. Firstly, due to the long-tail nature of these claims. The statute of limitations in Israel is seven years and claims are sometimes made at the last minute or even late, and even so insurance companies find it hard to repudiate claims from even longer back and usually prefer to settle rather than go to court with the hope of winning. Furthermore, National Insurance Institute subrogation claims leave the insurance companies and their reinsurers in a very precarious situation when making IBNR provisions.

Some of the defendants in these claims have a very remote connection to the accident, despite which their insurers find themselves drawn into protracted legal proceedings involving substantial costs (loss adjusters, lawyers and the like).

The awards made under the Third Party Liability and Employers Liability sections of Contractors All Risks policies can be very high, especially under heads of tort such as future income losses or the “Lost Years”. Even claims brought by manual labourers or unqualified youngsters can results in compensation of millions of shekels when their injuries have a major impact on their future income potential.


Substantially increased premiums and deductibles and tighter wordings

The losses sustained by reinsurers have led to a drastic and consistent increase in rates for Contractors All Risks policies in Israel. Rates have risen exponentially, underwriting conditions have hardened, deductibles have increased substantially and contractors involved in certain types of projects which are considered to be especially high risk are quite often finding it difficult to obtain cover, all the more so for projects involving hazardous works such as urban renewal projects, groundwater excavation, restoration and preservation works and infrastructure projects. Even though the cost of insurance for a construction project is usually less than 1% of the direct construction costs (and up to 1.5% for very complex projects), arranging insurance has become quite an onerous task.

The solution – Streamlining the process of reconciliation between the National Insurance Institute and the insurance companies

The construction industry is an essential locomotive for the economic and an adequate solution needs to be found for the complex and gloomy situation the industry is experiencing. The arrangement the National Insurance Institute reached with the insurance companies in the motor insurance sector could be a model or basis for a similar arrangement in the construction sector. It would be possible to analyse the overall amounts paid by the insurance companies in subrogation claims and devise a formula based on a fixed annual lump-sum payment, to avoid the need for court litigation in each individual case.

This type of arrangement would contribute substantially to reducing the workload on the courts and free-up the resources of the National Insurance Institute and the insurance companies currently invested in maintaining and financing such a cumbersome and bureaucratic system.

More importantly – it is quite possible that such an arrangement may be the only way to make the Israeli construction insurance market more attractive to global reinsurers. It would achieve a win-win solution for all parties and give the insurance companies a greater level of security in measuring risk – a risk whose cost has contributed to no small extent to reinsurers withdrawing from the Israeli market recently.


To conclude:

Our firm is in ongoing consultation with various experts and key personnel including the Israel Builders Association. It is clear that a joint effort by the insurance companies, the Israel Builders Association and Knesset members will be required to draft a private bill for parliamentary debate. We are attempting to influence decision makers and the Israeli government to act decisively in formulating a plan of action along these lines, a decision which will greatly contribute to the resurgence of the Israeli construction insurance sector.

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