Contractor's All Risk Insurance Policy – Coverages, Exclusions, Add-On Covers, Benefits, Cost, Sum Insured, Companies, Claim Process, Quotes

What is a Contractor’s All Risk Insurance Policy?

A Contractor’s All Risk Insurance Policy, also known as Construction All Risks Insurance Policy, is a type of Insurance Policy which provides comprehensive coverage to contractors for various risks associated with under-construction civil projects. A Contractor’s All Risk Insurance Policy provides cover for Physical Loss or Damage to Project Materials, Machinery as well as Third-Party Liability for Bodily Injury or Property Damage caused at a construction site.

What are the coverages under a Contractor’s All Risk Insurance Policy?

A Contractor’s All Risk Insurance Policy has 2 sections:

Material Damage Section of Contractors All Risks Insurance Policy

The Material Damage Section of Contractors All Risk Insurance Policy covers Physical Loss or Damage to the property under construction. The Material Damage Section provides coverage for various perils as follows:

1. 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
2. Handling Risks: It also covers damage to the Property under construction on account of Impact Damage, Collission, Failure of Cranes or Collapse
3. 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.
4. Major Perils/Act of God Claims: This section of Construction All Risks Insurance Policy covers damage to the Property under construction on account of Acts of God Perils such as:
   • Fire and Lightning
   • Earthquake, Fire & Shock
   • Storm, Tempest, Floods, Inundation, Cyclone, (STFI) etc.
   • Rockslide, Landslide, Subsidence, Lightning or other atmospheric disturbances
   • Water Damage for Wet Risks ie Contract involving works in Rivers, Canals, Lakes or Sea

Third-Party Liability Section of Contractors All Risks Insurance Policy

Third-Party Liability Section of CAR Policy covers Bodily Injuries and Property Damage to Third-Parties because of Construction Activities.

What are the main exclusions under a Contractor’s All Risk Insurance Policy?

The main exclusions under a Contractor’s All Risk Insurance Policy are as follows:

1. War: A Contractors’ All Risk Insurance Policy excludes loss or damage due to War
2. Negligent Acts: A Contractors’ All Risk Insurance Policy excludes loss or damage due to Negligent Act or Willful Act of the Insured
3. Normal Wear and Tear: Loss or Damage due to Normal Wear and Tear or Gradual Deterioration is not covered under a CAR Policy
4. Inventory Loss: Loss discovered at the time of taking inventory is not covered under a CAR Policy
5. Nuclear Acts: Loss or Damage due to Nuclear reaction, Nuclear radiation or Radioactive contamination is not covered under a Contractors All Risk Insurance Policy
6. Faulty Workmanship: A Contractors’ All Risk Insurance Policy excludes loss or damage due to Faulty Workmanship

What are the Add-On Covers in a Contractor’s All Risk Insurance Policy?

The Add-On Covers in a Contractor’s All Risk Insurance Policy are as follows:

1. Removal of Debris: The Removal of Debris Add-On Cover covers the costs of demolishing or removing debris of Property insured under the Material Damage Section.
2. Professional Fees: The Professional Fees Add-On Cover covers the fees of Architects, Surveyors and Consulting Engineers or other Professional Fees incurred in the reinstatement of the Insured Property following an admissible claim under Material Damage Section of the Policy,
3. Temporary Access Roads and other Temporary structures: The Temporary Access Roads Add-On Cover indemnifies the Insured for unforeseen accidental loss or damage to temporary access roads or other temporary structures etc if such loss or damage occurs prior to such roads being completed or taken into use for the intended purpose by the contractors. So, the Insurance Company pays for any accidental loss or damage to Temporary Access Roads or other Temporary Structures only during the construction phase. The moment the road is taken into use, it goes out of the Scope of Coverage of CAR Policy and no loss is payable. Also, Temporary Access Roads or other Temporary Structures are covered under the Policy subject to their values being declared separately in the Policy.
4. Owners’ Surrounding Property: Owners’ Surrounding Property extension covers loss of or damage to surrounding property of Owner located on project site if damage is caused directly due to the Erection, Construction or testing of the property covered under the policy. This extension is granted when a CAR policy is given for the expansion work carried out in the existing premises and cover does not apply to construction/erection machinery, plants and equipment including Temporary buildings.
5. Loss Minimisation expenses: The Loss Minimisation Expenses Extension says that in normal course, the Insured is supposed to take all steps to minimise further loss arising from that loss event. So, the Insured must try and prevent whatever further loss, or damage might happen to the Insured property following a loss and in the Process of Preventing further loss, if the Insured incurs an additional expense, this additional expense is payable under the Loss Minimisation Expense Extension of the Contractors All Risk Insurance Policy.
6. Escalation Clause: Escalation Clause in a Contractors All Risk Insurance Policy provides an automatic increase in the Policy Sum Insured upto selected % of Sum Insured and the Claim is settled at increased replacement/reconstruction cost as on date of loss subject to maximum of Sum insured of damaged item plus the selected % escalation cost. An Additional Premium is charged for opting for Escalation Clause in a Contractors All Risk Insurance Policy.
7. Additional Custom Duty Cover: Additional Customs Duty Add-On Cover provides compensation for Additional Custom Duty Incurred than what has been Insured for importing damaged parts at the time of loss.
8. Storage Risks at the Fabricator’s Premises: Storage Risks at the Fabricator’s Premises Extension covers loss or damage to Project material that happens at the Fabricator’s Premises or Workshop by a Peril not excluded under the CAR Policy subject to of all fabricator locations being declared in the Policy.
9. 50:50 Clause: The 50:50 Clause in a Contractor’s All Risk Insurance Policy addresses the apportionment of loss or damage to the Insured Property when the cause of damage cannot be definitively determined. The Clause is used when it is not clear whether the damage to the Insured Property occurred during the Transit Stage when the Project materials were being transported to the project site or during the Construction Stage. In such a scenario, the loss is shared equally between the Marine Insurance Policy and the CAR Insurance Policy, provided that the 50:50 clause is included, in both, the CAR and Marine Insurance Policy.
10. Cross Liability Cover: The Cross Liability Cover in in a Contractors All Risk Insurance Policy extends the Third-Party Liability Cover of the CAR Policy to cover subcontractors named in Policy schedule as if a separate policy has been issued to each party. That means if the property of one contractor is damaged by other contractor while carrying out their defined scope of work, such losses are payable under Cross Liability Cover.
11. Extended Maintenance Period Cover: The Extended Maintenance Cover in in a Contractors All Risk Insurance Policy provides coverage for Loss or Damage to the Contract Works
    • caused by the Insured contractor(s) in the course of the operations carried out for the purpose of complying with the obligations under the maintenance provisions of the contract.
    • occurring during the maintenance period provided such loss or damage was caused on the site due to faults and errors made during the erection period.
12. Cover For Insured Contract Works Taken Over or Put into Service: The Put to Use Clause or Put into Service Extension covers loss or damage to parts of the insured contract works taken over or put into service if such Loss or Damage emanates from the construction of the items insured under Section 1 (Material Damage Section). The Insurance Company will pay for losses or damage to parts of Insured Contract Works provided that such losses emanate from the Construction Work. If the Construction Work of the Project results in damage to Insured Contract Works, then only the loss becomes payable under the “Put to Use” Clause. The “Put to Use” Clause will not Cover Loss or Damage to Insured Contract Works due to AOG Perils such as Earthquakes, Floods, Storms etc.

What are the benefits of a Contractors All Risk Insurance Policy?

The Benefits of a Contractor’s All Risk insurance Policy are as follows:

1. Financial Protection: A CAR policy helps contractors manage the risks associated with construction projects.
2. Peace of Mind: A CAR policy provides peace of mind to the contractors as they are aware that they are secured against unforeseen accidents and thus they can focus on completing the job
3. Protection against liability: A CAR Policy also provides coverage for Bodily Injury and Property Damage to third-parties which can result in costly lawsuits.

What is the Cost of Construction All Risk Insurance Policy?

The Cost of a Contractors All Risk Insurance Policy is based on the following factors:

1. Nature of Project
2. Period of Insurance (computation of premium for total period of insurance)
3. Sum Insured
4. Excess
5. Add-on Covers

What is the Sum Insured under a Contractors All Risk Insurance Policy?

The 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 must 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 must 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.

What is the Period of Cover under a Contractor’s All Risk Insurance Policy?

Period of Cover under a CAR Policy starts from the date of arrival of first consignment at site and unloading of the property at the site and expires on completion and handing over of the project to the principal or on the date as specified in the schedule, whichever is earlier. The Contractor’s All Risk Insurance Policy will start from the date of arrival of first consignment at site and the premium is also supposed to be charged from that date and the Policy will expire when the Project is completed and handed over or the policy will expire on the end date even if the project is not completed.

What is the Basis of Loss Settlement for a Contractor’s All Risk Insurance Policy?

A Contractors All Risk Insurance Policy pays for the cost of repairs necessary to restore the property to its original condition immediately before the occurrence of the damage in the case of damage which can be repaired. In case of a Total Loss, the CAR Policy pays the actual value of the property immediately before the occurrence of the loss.

Which Insurance Companies offer a Construction All Risks Insurance Policy?

Following Insurance Companies offer a Construction All Risks Insurance Policy:

1. New India Assurance Company
2. Oriental Insurance Company
3. National Insurance Company
4. Bajaj Allianz General Insurance Company
5. ICICI Lombard General Insurance Company
6. HDFC Ergo General Insurance Company
7. SBI General Insurance Company
8. Iffco Tokio General Insurance Company

What is the Claims Process for Contractors All Risk Insurance Policy?

Once the Insured Property has been damaged, the Insured needs to follow the below steps to file a claim under a Contractors All Risk Insurance Policy:

1. Claim Intimation: The Insured should intimate the claim as soon as possible to the Insurance Company which will register a Claim. The Insured must provide details like Date, Time and Location of the Damage Incident, Loss or Damage to Assets, Brief Description of the Accident, while registering a Claim.
2. Surveyor Appointment: The Insurance Company appoints a surveyor who visits the affected site for investigation.
3. Document Submission: The Insured needs to submit the documents required for a Fire Insurance Claim such as ID Proofs, GST Certificate, Claim Form, FIR Reports, Report of Damaged Assets etc.
4. Claim Assessment and Settlement: The Insurance Company assesses the Claim based on Documents submitted and Surveyor Reports. If the Claim is admissible, the Insurance Company settles the Claim as per the Contractors All Risk Insurance Policy Terms and Conditions

What kind of Projects are covered under a Contractor’s All Risk Insurance Policy?

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

1. Residential Buildings, Commercial Buildings like Shopping Malls, Multiplexes
2. Factory Buildings, Warehouses, Godowns
3. Roads, Bridges and Flyovers
4. Canal, Irrigation Projects
5. Tunnels, Dam, Reservoirs
6. Interior Decoration Works: Once the building is complete or your flat is complete, residential complex is completed, then interior decoration work which is a sizeable amount is supposed to be completed. And, for that you need to have a separate CAR policy

What are the different stages under which a Contractor’s All Risk Insurance Policy is in Force?

A Contractor’s All Risk Insurance Policy covers the physical loss or damage to the project works whilst:

1. Construction Material is stored at project site because a Contractor’s All Risk Insurance Policy starts from the day of arrival of first consignment at the project site. So, the Policy is in force when the construction material is stored at the Project Site
2. The Policy is also in force during the construction or erection stage.
3. The Policy is also in force during the Defect Liability Period: Defect Liability Period is also known as Maintenance Period. So, if the contractor opts for a Defect Liability Period Cover the policy will be in force during the maintenance period as well. Defect Liability Period Cover is basically a Maintenance Period Cover because contractors are not only responsible to construct the project, but many times, the principals, make them responsible to maintain the project for a period of 6 months, 1 year, 2 years and sometimes for a period as high as 5 years.

So, these are the three stages covered under a Contractor’s All Risk Insurance Policy.

Get Best Quotes for Contractor’s All Risk Insurance Policy with Qian!

Construction Projects are exposed to various forms of risks during the construction phase and a Contractors All Risk Insurance Policy mitigates almost all such risks. An accident can result in losses of Crores of Rupees and can be a huge setback. This is why a Contractors All Risk Insurance Policy is a must-have Insurance Policy for all Contractors. If you are looking to purchase Contractors All Risk Insurance for your construction projects, the team at Qian Insurance Broking will help you understand the various Clauses and make sure that you receive comprehensive Contractors All Risk Insurance Policy Coverages and Limits. If you wish to purchase a Contractors Insurance Policy for your company, you can reach out to the experts at Qian at insurance@qian.co.in or 📞 022-35134695 or fill this Contact Form . We will be glad to assist you.

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