CONTRACTOR'S ALL RISK (CAR) INSURANCE POLICY

A Contractor's All Risk Insurance Policy is a type of insurance policy given to under-construction civil projects. A Contractor's All Risk Insurance Policy provides cover for Material Damage and Third-Party Liability at a construction site. A Contractor's All Risk Insurance Policy is also known as a CAR Policy.

A Contractor's All Risk Insurance Policy usually covers the construction of civil works such as:

• Residential Buildings, Commercial Buildings like Shopping Malls, Multiplexes
• Factory Buildings, Warehouses, Godowns
• Roads, Bridges and Flyovers
• Canal, Irrigation Projects
• Tunnels, Dam, Reservoirs
• Interior Decoration Works: Once the building construction is completed, then interior decoration work which is a sizeable amount is supposed to be completed. And, for that you need to have a CAR policy

Sum Insured under a Contractor's All Risk Insurance Policy is the estimated completed value of the Project. Now if the project duration is 3 years, the Contractor should declare the total construction cost to be incurred over the duration of 3 years. Otherwise, it will attract underinsurance at the time of claim.

The following points have to be considered while calculating the estimated completed value of the project under a Contractors All Risk Insurance Policy:

1. Cost of imported and indigenous supplies of Plant & Machinery and Construction material to be used in the project such as plant and machinery, building material, specific machinery, whether they are imported or indigenous. In some cases, imported machinery is also involved and that also has to be included while calculating cost.
2. Freight: All types of Freight Costs such as Ocean Freight, Air Freight which is likely to be spent by the Insured as Transportation Cost up to the site of construction have to be added while calculating the Sum Insured under a Contractors All Risk Insurance Policy.
3. Custom Duties: Custom Duties are an important component in case of imported machinery which has to be added while calculating the Sum Insured under a CAR Policy.
4. Cost of Construction: Cost of Construction mainly includes labour cost and other miscellaneous expenses such as electricity expenses at the construction site, hiring expenses for any machinery which is hired, salary expenses for temporary and permanent labour. Such expenses have to be included while arriving at the Sum Insured for Contractor's All Risk Policy. Cost of Construction will also include the cost of temporary construction works which is constructed to facilitate the construction of the civil structure. These temporary works are dismantled after the construction of the civil structure.
5. Permanent Civil Engineering Works: All Permanent Civil Engineering Works have to be declared separately with a separate Sum Insured for a Contractors All Risk Insurance Policy. The Sum Insured for Permanent Civil Engineering Works has to be added to the Policy Sum Insured for a Contractors All Risk Insurance Policy. So, the permanent blocks, which will remain there after the completion of work, like a boiler house building, powerhouse buildings or godowns etc. have to be mentioned separately in the Contractor's All Risk Insurance Policy Copy.
6. 50% of the Escalated amount if Escalation is opted for: There is a provision in Contractor's All Risk Insurance Policies to opt for Escalation to take care of mid-term increase in expected cost of construction or project completion cost. For eg: if the client opts for 20% Escalation and the estimated project cost is Rs1000 crores, 20% of Rs1000 crores is Rs200 crores. You have to add 50% of Rs200 crores that is Rs100 crores while calculating Sum Insured. This means that the premium is charged only on Rs100 crores while the Sum Insured increases by Rs200 crores.

Note that Pre-Operative Expenses such as Technical Consultants Fees, Project Financing Expenses, Site Leveling Expenses or Soil Testing Expenses or any other expenses which are not required to be incurred during the course of construction are not to be included in the Policy Sum Insured.

A Contractor's All Risk Insurance Policy has 2 sections: (same under both CAR and EAR policy)

Section 1: It covers Physical Damage or Material Damage to the property under construction. It is called the Material Damage Section of a CAR Policy.

Section 2: It'covers Third-Party Bodily Injury and Property Damage. However, the Third-Party Bodily Injury and Property Damage won't cover bodily injuries to the contractor's employees) as they are covered under Workmen's Compensation Policy. It is called the Liability Section of a CAR Policy.

The above 2 sections are the major Contractor's All Risk Insurance Policy Coverages.

A Contractor's All Risk Policy is an All-Risk Insurance Policy. It covers various perils under different groups as follows:

Location Risks: It covers Material Damage to the Property Under Construction including materials stored at the site on account of perils such as Fire, Lightning, Theft and Burglary

Handling Risks: It also covers damage to the Property under construction on account of Impact Damage, Collission, Failure of Cranes or Collapse

Human Element Risks: A Contractor's All Risk Insurance Policy also covers damage to the Property under construction on account of Human Element such as Carelessness, Negligence, Malicious Acts, Riots & Strike, Human Error.

Major Perils/Act of God Claims: This section of Contractor's All Risk Insurance Policy covers damage to the Property under construction on account of Acts of God Perils such as:

1. Earthquake, Fire & Shock
2. Storm, Tempest, Floods, Inundation, Cyclone,  (STFI) etc.
3. Rockslide, Landslide, Subsidence, Lightning or other atmospheric disturbances
4. Water Damage for Wet Risks ie Contract involving works in Rivers, Canals, Lakes or Sea