The list of insurances the bank requires is a collateral document. It is not a risk management plan.
Hadar sent me a voice message at 6:40 in the morning. I heard construction-site noise in the background, and then the sentence: “Ilan, there was a tremor here overnight. Nothing dramatic. But I want you to look at the policy before I talk to the bank.”
It was the right question, at the right time, and that is rare.
Hadar is forty-four, second generation. Her father was a building contractor in Israel, and she moved into development on her own. This is her third project and her first in Cyprus, twenty-four units in Limassol, a construction contract worth 9.4 million euros, financed by a Cypriot bank loan of 5.2 million.
She came in well organized. A Cypriot lawyer, a local accountant, a construction contract on FIDIC terms, and an employers' insurance certificate hanging on the wall in the site office. She received the list of required insurances in the bank's loan approval letter, the conditions the bank demands in order to release the money, and treated it as a binding list. The logic sounds reasonable: if the bank demands it, it's needed. If the bank doesn't demand it, it's probably not critical.
The overnight tremor didn't bring anything down. But in the morning they found on site a glazing package, aluminum and windows that had arrived a week earlier, collapsed and damaged. The crane required re-inspection and stood idle for ten days. Cracks appeared in a slab poured two weeks earlier, requiring an engineer's opinion. And a neighbor's retaining wall shifted.
I sat down with her policy. Here is what I found.
First, the list of covered risks included fire, explosion, storm, flood, theft, malicious damage, impact and collapse. Earthquake did not appear. In Cyprus this is not coverage that comes in automatically; you have to request it explicitly and pay for it. The bank didn't require it, so the agent didn't price it, so it simply wasn't there. The glazing, sixty thousand euros, fell on her.
Second, and this is the part that surprised her most: the sum insured in the policy was 5.2 million euros. Exactly the amount of the loan. Not 9.4 million, which is the actual contract value. The same mechanism we saw with Oren, only bigger. Insurance of less than half the project means that every future loss, even a loss of a hundred thousand, would be assessed against that ratio.
And third, the thing that hurt the most. Five weeks of delay in the schedule. Hadar has twenty-four sale contracts with delivery dates and agreed compensation for delay. A contractors' all risks policy, by default, does not cover contractual penalties or loss of income from delay. There is coverage for that, insurers call it ALOP or DSU, advance loss of profits insurance, and the bank didn't require it.
The bank didn't require it because the bank doesn't really care about it. The bank wants the building to be built and the loan to be repaid. If it stands through a five-week delay, the bank is perfectly fine. The penalties to the buyers are a matter between Hadar and the buyers.
I tell my clients this at least once a month: the bank doesn't want your project to succeed. The bank wants the loan to be repaid. Those are two things that look exactly the same until the day they don't.
And there is an irony here that is hard to ignore. The only coverage that worked exactly as it should was the one Hadar hadn't chosen at all, employers' liability insurance. A Cypriot law from 1989 requires every employer to insure employees, in amounts set by the law itself. There is nothing to sell, nothing to haggle over, and no way to waive it. And that is exactly the coverage that did not rob her of sleep that morning.
What we have done since: we raised the sum insured to the full contract value, and added an escalation clause, because construction costs move in the middle of a project, and an amount set at the start goes stale. We added earthquake. We added cover for neighboring property, because of the neighbors' retaining walls. And we priced ALOP.
In the end she decided not to buy it. The premium was too high relative to the risk she estimates, and she preferred to reopen the delivery dates with the buyers.
And this is a point I want to stress: that was a decision. Not an assumption. She knew exactly what she wasn't insured for and why.
She said to me in our last conversation: “The bank didn't cheat me.”
True. The bank also never said it was protecting her. We assumed that ourselves.
The question I would ask in your place
- The list of insurances in my project - who wrote it: me, or whoever lent me the money?
- Which risks in this project fall on me and not on the bank, and who insures precisely those?
- If the site is halted for two months for a reason outside my control, who pays for the time?
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית