Erection All Risk Insurance Policy - Coverages, Exclusions, Add-On Covers, Sum Insured, Claim Process, Cost, Companies, Quotes

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 Project Insurance Policy which provides Coverage for Physical Loss or Damage to Project Materials, Machinery, Plant and Equipment during the installation and erection of machinery and equipments as well as Third-Party Liability for Bodily Injury or Property Damage caused at the Project site.

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

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. 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.

Third Party Liability Section

The Third-Party Liability Section of EAR Insurance Policy covers the legal liability of the Insured for Bodily Injury or Property Damage caused to Third Parties caused solely due to erection activity at project site.

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

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

1. War: An Erection All Risk Insurance Policy excludes loss or damage due to War
2. Negligent Acts: An Erection All Risk Insurance Policy excludes loss or damage due to Negligent Act or Willful Act of the Insured
3. Normal Wear and Tear: An Erection All Risk Insurance Policy does not cover Loss or Damage due to Normal Wear and Tear or Gradual Deterioration
4. Inventory Loss: Loss discovered at the time of taking inventory is not covered under an EAR Insurance Policy
5. Nuclear Acts: Loss or Damage due to Nuclear reaction, Nuclear radiation or Radioactive contamination is not covered under an Erection All Risk Insurance Policy
6. Faulty Workmanship: Any Loss caused due to Faulty Design or Bad Workmanship is not covered under an EAR Insurance Policy

What are the Add-On Covers under an Erection All Risks Insurance Policy?

The Add-On Covers in an Erection All Risk Insurance Policy are as follows:

1. Claim Preparation Costs: The Claim Preparation Costs Add-On Cover pays costs reasonably incurred by the Insured following a loss to the Insured Property to extract and compile information required by the Company from the Insured’s own records for the purpose of preparing a Claim under the Policy .
2. Air Freight Cover: The Air Freight Cover provides coverage for Expenses incurred on Air freight in connection with the indemnifiable loss under the EAR Policy.
3. 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 which have been taken into use or operation after the Expiry of the Testing Period.
4. Additional Custom Duty Cover: Additional Customs Duty Cover provides compensation for increased Customs Duty percentage payable on the replacement parts over and above the Custom Duty taken into account while arriving at the Sum Insured of the damaged item.
5. Brands and Trademarks Clause: The Brands and Trademarks Clause determines the salvage value of any damaged property after removal of all brands or trademarks or other identifying characteristics in case of loss or damage to the Insured Property bearing a brand or trademark by an Insured Peril.
6. Temporary Removal Cover: The Temporary Removal Cover provides coverage to the Insured Property whilst stored outside the Insured location, and temporarily removed for cleaning, renovation, repair or storage and even whilst in transit by road, rail or air.
7. Cessation of Work: The Cessation of Work Add-On Cover provides coverage for loss or damage by a cause which is not excluded under the Policy and happens during the cessation of work.
8. Owners’ Surrounding Property: Owners’ Surrounding Property extension covers Loss or 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.
9. Extended Maintenance Period Cover: The Extended Maintenance Cover in in a Erection All Risks Insurance Policy provides coverage for Loss or Damage to the Insured Contract Works
   • caused by the Insured contractor 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 during the erection period before the certificate of completion for the lost or damaged section was issued
10. Escalation Clause: Escalation Clause in an Erection 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.
11. Loss Minimisation expenses: The Loss Minimisation Expenses Extension says that in normal circumstances, the Insured is supposed to take all steps to minimise further loss arising from a loss event 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 Erection All Risk Insurance Policy.
12. 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,
13. Appraisement Clause: Under the Appraisement Clause, the Insurance Company does not conduct appraisement of the Insured undamaged property, if the aggregate claim for any one insured Loss or Damage does not exceed a pre-specified percentage limit.
14. 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.
15. 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 EAR Policy subject to of all fabricator locations being declared under the 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 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 Claims Process for Erection All Risk Insurance Policy?

Once the Insured Property has been damaged, the Insured needs to follow the below steps to file a claim under an Erection 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 Erection All Risk Insurance Policy Terms and Conditions.

What is the Cost of an Erection All Risk Insurance Policy?

The Cost of an Erection 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

Which Insurance Companies offer an Erection All Risks Insurance Policy?

Following Insurance Companies offer an Erection All Risks Insurance Policy:

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

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.

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: The first stage is tendering stage where the project tender is floated by Principal and the quotes are submitted by various contractors. After the tendering exercise is over, the Principal awards the contract to a contractor who is responsible for completing 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 the 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. So, this is the testing phase.
4. Provisional Handing Over Stage: 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: 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.

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. An Erection All Risk Insurance Policy covers all risks faced during the Erection Stage, Testing and Commissioning Phase of a Plant. 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 Coverage and Quotes. You can reach out to us at via email at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.