Contractor’s All Risk (CAR) Insurance provides protection against accidental physical loss or damage to construction works and, where opted for, third-party legal liability arising during a construction project. Since construction risks vary significantly according to project type, location, duration and contractual responsibilities, the policy should be selected carefully.
DOs
1. Assess the Complete Project Value
Ensure that the sum insured represents the full value of the completed contract works, including materials, labour, freight, customs duties and other relevant project costs as required by the policy.
2. Clearly Describe the Project
Provide accurate details regarding the nature of construction, project location, structural design, construction methods and project duration.
3. Identify All Parties Requiring Cover
Check whether the principal, contractor and subcontractors should be included as insured parties according to contractual requirements.
3. Choose an Adequate Policy Period
The insurance period should correspond with the construction schedule. Consider whether testing, commissioning and maintenance periods also require coverage.
5. Evaluate Third-Party Liability Exposure
Select an appropriate liability limit, particularly where construction takes place near residential buildings, roads, utilities or neighbouring properties.
6. Examine Site-Specific Risks
Consider exposure to flood, cyclone, earthquake, landslide, subsidence, fire, theft and other natural or operational hazards relevant to the project location.
7. Check Coverage for Existing and Surrounding Property
Where construction is undertaken within or adjacent to existing structures, determine whether additional protection is required for surrounding or existing property.
8. Understand Deductibles
Check the excess applicable to different categories of loss. A very high deductible may substantially increase the contractor’s financial burden after a loss.
9. Review Extensions Carefully
Depending upon the project, consider extensions for debris removal, professional fees, escalation, temporary works, off-site storage and inland transit where available and necessary.
10. Disclose Material Information Fully
Inform the insurer about unusual construction techniques, hazardous activities, previous losses, changes in design and other material circumstances relevant to underwriting.
DON’Ts
1. Don’t Buy Only on the Basis of Lowest Premium
Compare coverage, exclusions, deductibles, limits and extensions rather than selecting a policy purely because it is cheaper.
2. Don’t Underinsure the Project
An inadequate sum insured may affect claim settlement and leave a significant portion of the loss with the insured.
3. Don’t Assume Every Construction Risk Is Covered
CAR insurance is broad but not unlimited. Read exclusions and special conditions carefully.
4. Don’t Ignore Design-Related Exclusions
Understand how the policy treats defective design, defective material and faulty workmanship and whether any relevant extensions are available.
5. Don’t Ignore Testing and Commissioning Risks
Projects involving machinery, electrical installations or specialised equipment may have significant exposures during testing and commissioning.
6. Don’t Overlook Maintenance Period Requirements
Construction may be completed while contractual responsibilities continue. Check whether maintenance-period cover is required.
7. Don’t Ignore Changes During Construction
Major changes in project value, scope, construction method or completion date should be communicated to the insurer.
8. Don’t Assume Contractors’ Plant and Machinery Is Automatically Covered
Construction equipment may require separate Contractors’ Plant and Machinery insurance or a specific extension.
9. Don’t Ignore Contractual Insurance Clauses
Review the construction contract to ensure that the policy satisfies required limits, insured parties and other insurance obligations.
10. Don’t Wait Until Construction Has Progressed Significantly
Arrange CAR insurance before commencement of work and ensure that the effective date corresponds with the actual commencement of insured risk.
Key Takeaway
A Contractor’s All Risk policy should reflect the actual project exposure rather than simply the contract price. Correct valuation, adequate liability limits, appropriate extensions, proper disclosure and careful examination of exclusions can make a substantial difference when a major construction loss occurs
