Erection All Risks Insurance : Definition, Coverages,Exclusions, Policy Quote

What is an Erection All Risk Insurance Policy?

An Erection All Risk Insurance Policy, also known as an EAR Insurance Policy is a type of Insurance Policy which provides comprehensive Insurance Cover for the entire project of installation/erection of machinery and equipments from the time of arrival of first consignment at site and terminates on completion of erection/testing/commissioning or the plant is taken over, whichever occurs first and the maintenance period thereafter. The Erection All Risk Insurance Policy provides cover for Material Damage and Third-Party Liability during the erection stage of the Plant. The Coverage under the Erection All Risk Insurance Policy is very similar to coverage under the Contractors All Risk Insurance Policy except that the Erection All Risk Insurance Policy also provides coverage during the testing and commissioning stage after installation which is not required under a Contractors All Risk insurance Policy. An Erection All Risk Insurance Policy can be taken in the name of the Principal, Contractors, Project Financiers and Joint Names of either of the Parties as well.

What kind of Projects are supposed to be Covered under Erection All Risk Insurance Policy?

Projects involving Erection & Testing of equipment or facilities including related civil works are normally covered under an Erection All Risk Insurance Policy:

1. Projects such as Erection of (Thermal/Hydro/Solar/Wind/Gas-based) Power Plants which involves installation of Gas Turbines, Steam Turbines, Generator, Boilers are insured under an Erection All Risk Insurance Policy.
2. Projects such as erection of Petrochemical Plants, Integrated Steel Plants, Cement Plants and installation of Clinker Units are insured under an Erection All Risk Insurance Policy.
3. Combined Cycle Power Plants involving integral testing are to be insured under an Erection All Risk Insurance Policy.
4. Erection of Paper Mills, Sugar Mills also need to be insured under an Erection All Risk Insurance Policy.
5. Erection of Transmission Towers So, above-mentioned projects are few examples of projects which need to be Insured under an Erection All Risk Insurance Policy.

Understanding Different Stages of a Project and its Coverage under an Erection All Risk Insurance Policy

It is very important to understand the various stages of a project in order to understand the coverage under an Erection All Risk Insurance Policy.

1. Tender Stage: So, the first stage is tendering stage. Initially, the project tender is floated by Principal and the tenders are submitted by various contractors. After the tendering exercise is over, the Principal awards the contract to one final contractor who is supposed to complete the entire project. The Contractor appoints Sub-Contractors for various works. No Contractor does the whole project himself because he does not have the expertise of all activities. So the overall contract is taken by the contractor, but the contractor also subcontracts the works to subcontractors.
2. Mobilisation Stage: After the contract is awarded, mobilization of materials and machinery begins. The contractor orders machinery and project materials, and the material starts moving towards the construction site. The Erection All Risk Insurance Policy commences from the arrival of first consignment at the Project site.
   The Policy does not start from the day construction begins but commences on arrival of first consignment at the construction site because storage at the project site is also covered under an Erection All Risk Insurance Policy.
   The project construction starts, progresses and it reaches 100% completion stage. So, this is known as the storage come erection period. The Erection All Risk Insurance Policy provides coverage during storage as well as erection stage. Ultimately, the project reaches to 100% Completion stage.
3. Testing Stage: Once the project is completed, then testing is done. This is known as Testing Period.
   Once the project construction is completed and testing is about to commence, the Insured has to inform the Insurance Company that the project is completed and testing is going to commence. So, the Testing Period begins. The plant is tested for a period of 2 months, 3 months, or even 6 months during the Testing period. If the plant is not operating as per the desired parameters, the Principal will not agree to take over of the Project. The Principal will not agree to relieve the contractor. So, Contractors Interest will be involved. So, this is the testing phase.
4. Provisional Handing Over Stage: Now, after the successful completion of testing and commissioning of the plant, the provisional handing over of the project takes place. Once the provisional handing over of the plant is done, it means that the erection and testing of the plant is completed and the plant has begun commercial operations. After the Provisional Handing over of the project is done, the Erection All Risk Insurance Policy continues, but it covers claims only related to maintenance (maintenance period) activities. Any Claims, say, for example, a flood claim, a machinery breakdown claim, is covered under the respective Operational Policy.
5. Defect Liability Period/Maintenance Period: Now after the Provisional Handing Over Stage, the Defect Liability Period starts. Defect Liability Period means Maintenance Period. During the Defect Liability Period, the Contractor is responsible for running of the plant and any Claim during the Defect Liability Period relating to the maintenance of the plant is payable under the Erection All Risks Insurance Policy depending on whether the Contractor has opted for a Limited Maintenance Cover or Extended Maintenance Cover. The Erection All Risks Insurance Policy pays any loss that happens during the course of maintenance under the Defects Liability Period Cover or the Maintenance Cover but any operational loss during the Defects Liability Period is not paid under a Erection All Risk Insurance Policy, the loss would be paid under a Fire Insurance Policy/Machinery Breakdown Insurance Policy and similar policies.

Provisional Handing Over of the Project starts after the successful completion of testing and Final Handing Over of the Project is done after the completion of Defect Liability Period. The Defective Liability Period can range from 6 months to 60 months also.

What does an Erection All Risks Insurance Policy Cover?

The Erection All Risks Insurance Policy (EAR Insurance Policy) covers physical loss and/or damage to Insured Property occurring during the Policy Period and caused by a Peril Not Excluded under the Policy. The Policy covers damage to the Insured Property from the time project material is unloaded at project site, during storage, shifting at site from one place to another, during Erection and testing & commissioning of plant. The EAR Insurance Policy ends after the commissioning stage but it can be extended to cover Maintenance Period also, but a separate Limited/Extended Maintenance Add-On Cover has to be taken for coverage during the Maintenance Period. Under the Limited/Extended Maintenance Add-On Cover, the Policy provides cover to property during maintenance period after Provisional “Taking-over” of plant by Principals, but the coverage is restricted to Loss/damage to property occurred by Contractor/Contractor’s employee(s) during the course of maintenance as per agreed terms. The EAR Insurance Policy will not cover flood loss, Fire Loss or Machinery Breakdown Loss during the Maintenance Period/Defects Liability Period. The Fire Losses, Machinery Breakdown Losses, Flood Losses etc. will be covered under respective operational policies.

The Erection All Risks Insurance Policy provides coverage under 2 sections:

1. Material Damage Section: The Material Damage Section covers Physical Damage or Material Damage to the Insured Property by any Peril not excluded under the Policy.
2. Third Party Liability Section: The Third-Party Liability Section of EAR Insurance Policy covers the legal liability for accidental loss or damage to Third-Party Property and the legal liability for fatal or non-fatal injury to any person other than the Insured’s own employees or Workman, caused solely due to erection activity at project site.

What does the Material Damage Section of the Erection All Risks Insurance Policy Cover?

The Material Damage Section of the EAR Insurance Policy covers the following:

1. Location Risk: Fire, Lightning, Theft, Burglary and House Breaking
2. Handling Risks such as Impact from Falling Objects, Collision, Failure of Cranes.
3. Testing and Commissioning Risks: Major losses take place during testing stage of the Plant. Incidents such as Failure of safety device, Leakage of Chemical during testing, Insulation Failure, Short Circuiting, Fire, Explosion result in major claims during the Testing and Commissioning Stage of the plant.
4. Risk of Human Elements: Human Element Risks such as carelessness, negligence, fault in erection, Riot, Strike, Malicious Damage (RSMD) are covered.
5. Acts of God: Damage arising due to Acts of God Perils are covered. Loss or Damage arising due to Flood, Inundation, Subsidence, Landslide and similar perils are also covered.

What is the Sum Insured of the Erection All Risks Insurance Policy?

The Sum Insured under Erection All Risks Insurance Policy represents the Estimated Completely Erected Value. The Estimated Completed Erected Valus of the Project is the sum total of the following:

1. Cost of Imported / Indigenous Machinery incl. freight, custom duty etc.
2. Cost of Erection including Wages, Power.
3. Civil Engg Works like- Factory shed, Storage & other Buildings
4. Cost of Free supply items supplied by the Principal
5. 50% of Escalation cost if opted for.
6. Contractor’s Plant & Machinery can be covered under same EAR policy if the value is less than 5% of Total Project Cost (max. Rs 25 lacs) subject to applying rates, terms & conditions of CPM policy.

What is the Period of Cover under the Erection All Risks Insurance Policy?

The Duration of an Erection All Risk Insurance Policy is as per the following:

1. The Policy commences from the date of arrival of first consignment of project material at site and shall expire on successful completion of testing & commissioning of project or the policy expiry date specified in the schedule, whichever is earlier.
2. The Insurance Company’s liability under the Erection All Risks Insurance Policy shall expire for parts of the insured contract works TAKEN OVER OR PUT INTO SERVICE by the Principal prior to the expiry date specified in the policy.
3. In the event of non-completion of the project within the policy period, cover may be extended for such further time as may be required at additional premium.

What are the main exclusions under an Erection All Risk Insurance Policy?

An Erection All Risks Insurance Policy excludes losses due to the following:

Get Best Quotes for Erection All Risk Insurance Policy with Qian!

Erection of a Factory and Plant is exposed to various forms of risks during the erection, testing and commissioning phase. The Erection All Risk Insurance Policy covers such risks faced during the Erection Stage If you are looking to purchase an Erection All Risk Insurance for any project, the team at Qian Insurance Broking will help you understand the various Clauses and make sure that you receive comprehensive Erection All Risk Insurance Policy Coverages and Quotes. You can reach out to us at via email insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.