What is a Contractor's All Risk Insurance Policy?

A Contractor’s All Risk (CAR) Insurance policy is designed specifically for construction and engineering projects, providing comprehensive coverage to protect against various risks that may arise during the construction phase. This policy shields contractors, project owners, and subcontractors from potential financial losses due to damage to the works or third-party liabilities that may occur during project execution. CAR insurance is crucial for large-scale construction projects, as it ensures that financial stability and continuity are maintained despite unforeseen circumstances.

What Kind of Projects are Covered under a Contractor's All Risk Insurance Policy?

CAR insurance typically covers a wide range of construction projects, including residential buildings, commercial structures, roads, bridges, dams, and civil engineering projects like sewage treatment plants and power plants. Additionally, projects involving renovation, repair, or extension of existing structures are also eligible for CAR coverage. This policy is highly adaptable, offering coverage for various types of projects across different sectors, thus providing a safety net for all stakeholders involved.

What is the Sum Insured under a Contractor's All Risk Insurance Policy?

The sum insured under a CAR policy is calculated based on the total project cost or the estimated completed value of the construction project. This includes the value of materials, labor costs, and other associated expenses that contribute to the final cost. The purpose is to ensure that the insured amount aligns closely with the actual project value, allowing for adequate financial protection in case of any losses or damages.

What is the Estimated Completed Value of the Project under a Contractor's All Risk Insurance Policy?

The estimated completed value under CAR insurance refers to the anticipated final cost of the project once all work is completed. This figure forms the basis for the policy’s sum insured and typically includes direct and indirect costs, as well as contingencies. Having an accurate estimation helps in determining an adequate premium and guarantees that all aspects of the project, from initial groundwork to final installations, are covered.

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

A CAR insurance policy generally includes two major coverage sections: Material Damage and Third-Party Liability.

• Material Damage: This section provides coverage for any accidental physical loss, destruction, or damage to the insured construction work. It includes coverage for the project site, materials on-site, machinery, and equipment against risks such as fire, natural calamities, and accidental damages.
• Third-Party Liability: This section covers the insured against legal liabilities arising from third-party bodily injury or property damage caused due to project activities. It covers legal fees, compensation claims, and other expenses that the contractor might incur in case of a third-party incident.

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

Under the Material Damage section, the following perils are generally covered:

1. Fire, Explosion, and Lightning: Protection against fire, explosion incidents, or damage from lightning strikes at the project site.

2. Natural Disasters: Coverage for damages caused by earthquakes, floods, landslides, storms, cyclones, and other natural calamities.

3. Theft and Burglary: This section protects against theft or burglary of project materials, machinery, or equipment at the construction site.

4. Accidental Damage: Coverage for accidental damages that may occur during the construction process, such as collapse or breakage.

5. Human Error: Unintentional errors in the construction process or equipment operation that may lead to damage.

What are the Different Stages under which a Contractor's All Risk Insurance Policy is in Force?

CAR insurance is structured to cover various phases of a project:

1. Storage Stage: Covers materials, machinery, and equipment while stored on-site before the construction begins.

2. Construction Phase: Covers damages or losses during the active construction period, from groundwork to structural completion.

3. Testing and Commissioning Stage: For projects with machinery installation, CAR insurance covers the testing phase to ensure everything functions as planned.

4. Maintenance Period: Post-construction, the maintenance period allows for coverage against any damages or defects discovered after project completion.

What is the Duration of a Contractor's All Risk Insurance Policy?

The duration of a CAR insurance policy typically spans from the commencement of construction until the project is completed. It may extend into the maintenance period, providing coverage after the project handover. The policy duration is flexible and can be adjusted to align with project timelines, ensuring the insured remains covered throughout all critical stages of construction.

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

The period of cover usually includes the entire duration of the project, starting from the date construction begins and extending through to the project’s official handover. For some policies, a maintenance cover extension is also available, which covers specified maintenance activities for an additional period (typically up to 12 or 24 months after handover). The policyholder and insurer agree upon the precise period of cover, tailored to match the project’s specific requirements.

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

While CAR insurance offers extensive coverage, there are specific exclusions, which often include:

1. Wear and Tear: Damages from gradual wear and tear, corrosion, or deterioration are generally not covered.

2. Design Defects: Faulty design or inadequate workmanship by engineers or contractors that leads to damages is typically excluded.

3. Nuclear Risks: Any damage resulting from nuclear reactions, radiation, or contamination is excluded.

4. War and Terrorism: Damage arising from acts of war, terrorism, or political unrest is not covered.

5. Penalties for Delay: Financial penalties or losses due to project delays are not covered, as they don’t constitute physical damage.

Conclusion

A Contractor's All Risk Insurance Policy is an essential tool in managing risks associated with construction projects, providing comprehensive coverage that safeguards against unexpected damages and liabilities. By covering everything from material damage to third-party liability, CAR insurance ensures that contractors, owners, and stakeholders can proceed with their projects with financial peace of mind. Understanding the policy’s scope, sum insured, covered perils, and exclusions is essential for tailoring the coverage to each project’s unique needs and ensuring optimal protection.