Contractor's All Risk Policy

What is Contractor's All Risk Policy?

A contractor's all risk insurance policy, also known as CAR insurance, is like a safety net for construction projects. It protects against unexpected problems and covers things like damage to construction equipment, machinery, as well as third-party claims arising from bodily injury and property damage. This insurance is important because it helps keep construction projects on track and prevents financial losses, making sure they finish on time and within budget.

Features of Contractor's All Risk Policy:

Insurance coverage is applicable for civil engineering projects where the value of civil works is more than 50% of the total contract value.
It operates during storage, erection/construction till completion.
Loss, damage, or destruction of property incurred due to any cause other than those excluded in the policy is covered.
It is widely demanded by construction firms and financiers involved in construction projects.

Why do you need Contractor's All Risk Policy?
The contractor's all risk policy is a special type of insurance that helps protect construction workers from the unfortunate event of damage or destruction to their projects. It covers everything from small projects like offices, buildings, hospitals, and shopping complexes, to larger projects such as highways, dams, and tunnels. This policy provides coverage for accidental damage to the projects themselves, as well as any equipment or machinery owned by the contractors. In simple terms, it ensures that if something goes wrong during construction, the insurance will help cover the costs of repairs or replacements.

What will a Contractor's All Risk Policy cover?

Here are the common elements that are typically covered in a Contractor's All Risk Policy in India :

Construction Material Damage

It provides protection from physical loss or damage to construction materials and equipment used in the construction process due to a covered peril. It may also cover the cost of demolition and removal of damaged materials and cleanup of debris.

Third-party Liability

Under this policy, the insured is protected from legal liability for accidental damage or loss to a third party's property arising from construction work. It also covers the legal liability for non-fatal and fatal injuries caused to a third person due to the construction of the property

Negligence and Human Errors

CAR insurance policies often include coverage for loss originating from negligence and errors in the design, planning, or supervision of the construction project. If negligence or human errors result in third-party injuries or property damage, a CAR insurance policy may provide coverage for liability claims as well. This includes legal defense costs and any settlements or judgments against the insured party due to their negligence or errors.

Water Damage

A CAR insurance policy typically covers accidental water damage that occurs during the construction process. The policy may provide coverage for the resulting damage to the insured property or construction materials. It may also cover loss or damage arising from the entry of water into the construction site or the insured property due to heavy rainfall, storms, or other external factors.

Collapse

A CAR insurance policy covers both partial and total collapse of the insured structure during the construction phase. The policy will provide coverage for the repair or reconstruction costs associated with the collapse, up to the policy limits and deductibles.

Faults in Construction

This coverage can be provided as an extension or add-on cover. If a fault occurs due to design or engineering errors, resulting in damage or loss, a CAR insurance policy may provide coverage.

Fire, Explosion, Lightning, and Aircraft Damage

This cover refers to the protection provided for losses or damage that occur at the construction site, because of these specific perils. It includes damage to the construction site, materials, equipment, and structures due to fire-related incidents and explosions. This may be caused by factors such as gas leaks and chemical reactions, damage due to lightning-induced fires, electrical surges, and incidents where aircraft collide with the construction site, equipment, or structures, causing damage or destruction. The policy will cover the cost of repairing or replacing the damaged property.

Storms, Floods, Cyclones, Earthquakes, and Allied Perils

A CAR insurance policy generally covers losses or damages to the construction site, materials, equipment, or structures resulting from storms, overflowing rivers, heavy rainfall, or other flood-related events, cyclonic events, tremors, other earthquake-related factors, and other related perils. It may also provide coverage for the cost of repairs, reconstruction, or replacement necessitated by the covered perils mentioned above.

Add-on coverage :

Fire and allied perils
Collapse
Earthquake, shock, and fire
Faults in construction
Storms, floods, cyclones, and tempests
Negligence and human errors
Water damage

What's not covered?

Here are some common exclusions typically found in contractors' all risk insurance policies in India :

Nuclear threats, war, or war-like activity
Partial/total cessation of work
A willful act or willful negligence of the insured
Defective material or bad workmanship
Contractual liabilities
Normal wear and tear
Loss or damage due to faulty design
Damage caused by terrorism

Who needs a Contractors' All Risk Policy?

The contractor’s all risk insurance can be availed by those who are involved in any way in the construction business such as:

Contractors
Purchaser or owner
Companies financing the project
Firms commissioned to carry out the work, including subcontractors

You can also cover all participants under a single insurance contract for the whole project to avoid gaps in coverage.

FAQs

Who can purchase the contractor’s all risk insurance?

Contractor's All Risk insurance is available to everyone engaged in the construction industry, including:

Purchaser or owner
Contractors
Companies that are funding the project
Companies hired to execute the work, including subcontractors

What is the method of calculating risk used by insurance companies?

An insurance company examines several aspects while calculating risks and quoting the premium for the contractor's all risk insurance policy. These criteria include the scope, location, cost, and time frame for the construction work.

How do I claim a contractor's all risk policy?

To file a claim under the contractor's all risk policy, please follow the steps below :

Inform your broker right away to report the damage/loss. He will assist you in the entire claim settlement process.
Following phone notification, the insurer must be notified in writing of the damage or incidence of a loss. The severity of property damage must be included in the written notification.
If the loss or damage is the result of a burglary or theft, the insured should notify the police immediately.
The insurer sends a surveyor to conduct the survey.
The insured must now submit the completed claim form together with the accompanying documentation to the insurance company.

The following documents may be required-

The written statement of the claim, with information on the loss or damage to the property.
Technical damage report for machine claims.
Purchase invoices or delivery receipts.
A police report, if filed.
Estimate for repair or replacement.

Is it mandatory for contractors to have an all risk policy?

Though there is no specific law or regulation that mandates contractors to have an All Risk Insurance (CAR insurance) policy, in various cases the financier and the project assigner do ask the contractor to have a CAR policy in place before the project work inception. So, it is often recommended that contractors obtain CAR insurance. Construction projects involve various risks, including damage to the site, materials, and third-party liabilities. It can provide financial protection to the contractor in the event of accidents, natural disasters, theft, or other unforeseen circumstances during the construction process.

Why is the contractor all risk policy important?

Construction projects involve significant investments in materials, equipment, and labor. The CAR policy provides financial protection to contractors and project owners by covering the potential losses or damages that can occur during the construction phase. It helps mitigate the financial risks associated with accidents, natural disasters, theft, vandalism, and other unforeseen events. Thus, this policy can provide contractors with peace of mind, knowing that their project is protected in the event of an accident or damage. This can help contractors to focus on their work and avoid worrying about the financial implications of such incidents.

Many clients may require contractors to have a CAR policy in place before they will award a contract. This is because they want to ensure that their project is protected in the event of an accident or damage.

What does a cross liability mean in a contractor's all risk policy?

In a contractor's all risk (CAR) insurance policy, a 'cross liability' provision is a key feature that addresses the potential legal liability of different parties involved in a construction project. It ensures that each party is individually protected against claims made by other parties covered under the same policy.

What does a cross liability mean in a contractor's all risk policy?

Yes. The contractor’s all risk policy covers theft that may happen in the project or construction site.