An Erection All Risk (EAR) Insurance Policy is a crucial form of coverage for businesses involved in the construction, installation, and commissioning of heavy machinery, plant setups, and infrastructure projects. EAR policies offer financial protection against risks and unforeseen events that may impact such projects, covering both physical losses and liabilities. Let’s delve into each aspect of EAR insurance to understand its importance in the industrial and construction sectors.

1. What is an Erection All Risk Insurance Policy?

An Erection All Risk (EAR) Insurance Policy is designed specifically to cover the installation and erection of machinery, equipment, and infrastructure during a project’s lifecycle. This type of insurance offers protection from physical damage or loss that may occur during the setup, installation, or assembly phase, which is often high-risk due to the complex and technical nature of such projects. It covers accidental losses that may be caused by incidents like fire, explosion, natural disasters, faulty materials, or errors in design.

EAR insurance policies are typically purchased by contractors, sub-contractors, or project owners in the fields of engineering, construction, manufacturing, and energy.

2. What kind of Projects are Covered under an Erection All Risk Insurance Policy?

Erection All Risk Insurance is suitable for a wide range of projects, particularly those involving:

• Installation of industrial plants: EAR policies cover risks associated with the setup of industrial machinery and assembly lines in manufacturing facilities.
• Infrastructure projects: Large-scale infrastructure developments, such as bridges, roads, and railways, can benefit from EAR coverage, especially when heavy equipment and machinery installations are involved.
• Electrical and mechanical installations: Projects requiring the setup of generators, HVAC systems, and other large electrical or mechanical installations are also covered.
• Renewable energy projects: Solar farms, wind turbines, and other renewable energy installations are included, as these projects involve high-cost machinery and complex assembly requirements.
• Telecommunication projects: EAR policies can cover the installation of telecom towers and associated equipment, which have high exposure to risks during setup.

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

An EAR insurance policy is structured to offer comprehensive coverage across various stages of a project:

1. Storage: Coverage begins when machinery, equipment, or materials are stored onsite before erection. Risks like theft, fire, or damage from weather conditions are included during this stage.
2. Transit: EAR insurance also extends to transit of equipment from the supplier’s location to the project site, covering any damages incurred during transportation.
3. Assembly/Erection: The policy provides core protection during the assembly and erection phase, which often involves complex machinery, cranes, or hazardous tasks that expose the project to multiple risks.
4. Testing and Commissioning: This phase involves running tests to ensure all components are functioning as expected. The policy typically covers damages or breakdowns that may occur due to testing or commissioning errors.
5. Hand-over Period: Some policies extend coverage even after the project handover, giving the insured some assurance against potential issues that may arise shortly after project completion.

4. What does an Erection All Risks Insurance Policy Cover?

An EAR insurance policy offers extensive coverage, including:

• Physical damage or destruction: Covers the physical loss or damage of project materials or installed machinery from events such as fires, explosions, natural calamities (like floods or earthquakes), and accidental damage.
• Third-party liability: Covers legal liabilities arising from property damage or bodily injury to third parties due to accidents associated with the insured project.
• Testing and commissioning failure: Protects against failures during the testing phase, which is critical for ensuring equipment readiness.
• Damage due to human error: Protection against damages from unintentional human errors, such as installation mishaps or incorrect handling of materials.

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

The Material Damage (MD) section of an EAR policy is the backbone of this insurance and covers damages or losses directly impacting the project’s materials or equipment. This section provides financial coverage for incidents such as:

- Accidental Damage: Covers unintentional damage to machinery, materials, or infrastructure components.

- Damage from Natural Disasters: Protects materials and equipment from weather-related risks, such as floods, storms, or earthquakes.

- Fire and Explosion: Covers losses due to fires, explosions, or other fire-related incidents on-site.

- Damage due to Faulty Design/Material Defects: Some EAR policies offer limited coverage for damages due to defective design, poor material quality, or workmanship issues.

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

The sum insured for an EAR policy represents the total maximum liability that the insurer will bear in the event of a claim. It is generally calculated based on:

- Project Value: The total value of the project, including material costs, labor, and any other essential project expenses.

- Cost of Machinery and Equipment: High-cost machinery may increase the sum insured value to ensure adequate protection.

- Additional Costs: Transportation, customs duties, and other logistical expenses may be included in the sum insured calculation.

The sum insured should ideally reflect the full project value to provide comprehensive coverage and avoid underinsurance penalties.

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

The period of coverage under an EAR policy generally begins from the project’s initiation phase, encompassing storage, transit, erection, and testing, up to the project’s final handover to the client. Depending on the specific project requirements, the policy period may also extend slightly beyond handover. Commonly, the coverage duration includes:

1. Project Start Date: Typically when materials are stored or transported to the site.
2. Project Completion Date: When the project is fully completed and handed over to the client.
3. Extended Maintenance Period: An optional extension covering post-handover maintenance for a defined period, usually six months to a year.

8. What are the Main Exclusions under an Erection All Risk Insurance Policy?

Despite its broad coverage, an EAR policy also has exclusions, such as:

1. Normal wear and tear: Damages from natural wear or corrosion are not covered.
2. Faulty Design or Material: Some policies exclude damages due to faulty design or defective materials, though this may vary with endorsements.
3. Acts of war, terrorism, and nuclear risks: Incidents resulting from war, terrorism, or nuclear hazards are typically excluded.
4. Intentional Acts or Gross Negligence: Losses resulting from intentional harm, negligence, or lack of maintenance are not covered.
5. Consequential Losses: Losses arising indirectly, such as delays, penalties, or contractual fines, are generally excluded unless additional endorsements are taken.

Conclusion

An Erection All Risk Insurance Policy serves as a robust safeguard for complex projects that require substantial investments in machinery, labor, and infrastructure. By offering coverage throughout various project stages, from storage and transit to assembly, testing, and handover, this insurance provides peace of mind for project owners and contractors alike. With the right EAR policy, companies can ensure that unforeseen events do not derail their progress or cause severe financial setbacks.