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Contents
  1. Contractor's All Risk Insurance
  2. What is a Contractor's All Risk Insurance Policy?
  3. What kind of Projects are covered under a Contractor's All Risk Insurance Policy?
  4. What is the Sum Insured under a Contractors All Risk Insurance Policy?
  5. What is the estimated completed value of the project under a Contractor's All Risk Insurance Policy?
  6. What are the coverages under a Contractor's All Risk Insurance Policy?
  7. What are the Perils covered under the Material Damage Section of a Contractor's All Risk Policy Cover?
  8. What are the different stages under which a Contractor's All Risk Insurance Policy is in Force?
  9. What is the duration of a Contractors All Risk Insurance Policy?
  10. What is the Period of Cover under a Contractor's All Risk Insurance Policy?
  11. What are the main exclusions under a Contractor�s All Risk Insurance Policy?
  12. Looking for an Expert Insurance Broker for Contractors All Risk Insurance Policy?
  13. FAQS
  14. Testimonials

Contractor's All Risk Insurance

Today, we protect most of the assets that we own by means of an insurance policy. For eg we protect the plant and machinery in our factory with a Factory Insurance Policy or we protect buildings with a Fire Insurance Policy.

Similarly, there are many risks to which a project is exposed to during the construction phase. In order to secure the project during the construction stage, we opt for a Contractor’s All Risk Insurance Policy.

Contractor's All Risk Insurance

What is a Contractor's All Risk 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.

What kind of Projects are covered under a Contractor's All Risk Insurance 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

What is the Sum Insured under a Contractors All Risk Insurance 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.

What is the estimated completed value of the project under a Contractor's All Risk Insurance Policy?

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.

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

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.

What are the Perils covered under the Material Damage Section of a Contractor's All Risk Policy Cover?

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

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.

What are the different stages under which a Contractor's All Risk Insurance Policy is in Force?
What is the duration of a Contractors All Risk Insurance Policy?

What is the duration of a Contractors All Risk Insurance Policy?

Project Insurance Policies like CAR Policy or EAR Policy are not given to operational risks. These Policies are given only to projects during the course of construction.

Also, Project Insurance Policies like CAR Policy or EAR Policy are not limited to 12 Months.

Other engineering policies such as Machinery Breakdown, Boiler and Pressure Plant Policies, Contractors Plant and Machinery Policies and Electronic Equipment Policies are annual engineering policies and have a duration of 1 year. They are given to operational risks, whereas project insurance policies such as CAR and EAR Policies can be given on long term basis or for long term duration.

Project Insurance Policies, like CAR and EAR Policy, can also be given for less than 12 months. It can be given for 4 months, 3 months, 6months. You can take a Project Insurance Policy even for 1 month for a small project. On the other hand, the duration of a Project Insurance Policy, like CAR and EAR Policy, can be as high as 5 years.

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

Period of cover starts from the commencement of work from the date of arrival of first consignment at site and unloading of the property at the site and the insurance cover will expire 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.

For example, if the policy was taken for 36 months, even if the project is not completed, the policy will expire after the completion of Policy Tenure of 36 months, unless the policy is extended before the policy expiry date with the consent of insurance companies.

Now, another important point of the Contractor's All Risk Insurance Policy is the Put into Service Condition which states that, if some portion of the project is completed and put into service during the currency of the policy, even if the Contractor's All Risk Insurance Policy is operational, the Policy will not pay any claims for the completed portion of the project regardless of the fact that the project was handed over to the principal or not.

This condition is especially important for temporary access roads. So, the moment, the temporary access roads built by the contractors for movement of things like machinery, cranes, manpower, the moment the road are put into service, that temporary access road will be out of the purview of the Contractor's All Risk Insurance Policy and no claim will be payable with respect to that temporary access road. The Policy will only be effective as long as those temporary roads are under construction. Once the temporary construction work is completed and put into use, then that temporary work goes out of the purview of the Contractor's All Risk Insurance Policy. However, there is put into service add-on cover and the Policy can be extended to cover these temporary works which have been put into service.

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

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:

Exclusions under a Contractor's All Risk Insurance
Inventory Loss or Loss discovered at the time of taking inventory Normal Wear and Tear or Gradual Deterioration
Rust, scratching of painted or Polished Surface or Breakage of Glass Cost necessary for correction of any error are not covered under CAR Policy

Looking for an Expert Insurance Broker for Contractors All Risk Insurance Policy?

Construction Projects are exposed to various forms of risks during the construction phase. The Contractors All Risk Insurance Policy Coverages will mitigate most of the risks faced by under-construction projects.

If you are looking to purchase Contractors All Risk Insurance for your any construction project, the team at Qian Insurance Broking will help you understand the various Clauses and make sure that receive comprehensive Contractors All Risk Insurance Policy Coverages and Limits.

Request your FREE 1 Hour Contractors All Risk Insurance Policy Review with Qian. Contact us for your Contractor's All Risk Insurance Policy right now at support@qian.co.in or  📞 022-35134695 or fill this Contact Form.

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Looking for an Expert Insurance Broker for Contractors All Risk Insurance Policy?

FAQS

What is Cross Liability Cover under Contractor�s All Risk Insurance Policy?

Cross Liability Cover is given multiple contractors are working at the construction site. It happens in Big Projects, say for example at a Construction of Power Plant. One contractor will be there for erection of boilers while Another contractor would be employed for the construction of cooling towers. A Third Contractor would be for erection of turbines and generators.

And during the course of work, if there is damage to construction activity of one contractor on account of negligence of other contractor or the crane of one contractor is damaged as it is hit by the crane of another contractor, so, in that situation, such cases will come under Cross Liability Cover.

So, this extension is very important. In that situation, the contractor, whose property was damaged need not go to the court of law against the other contractor.

So, the Insurance Policy under the Cross Liability Cover will consider as if it had given third party liability cover to each contractor separately. So, all the claims will be settled under the CAR Policy without the need of going to court.

Testimonials

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