Types of Insurance

Contractors All Risk Insurance (CAR)

A contractor tenders for a job on the basis of design specifications
furnished by the client. It is not within the scope of contractor to verify
the design and specifications. His responsibility is restricted to
construction as per the specifications and designs of the
architect/designer.
Any loss or damage in contract works during the course of construction
will result in heavy financial loss to the contractor. Contractors margin
of profit will not be adequate enough to reconstruct the work after
damage. It is also not a commercial proposition for the contractor to
provide funds for all unforeseen and sudden losses. Contractors All Risk
(CAR) insurance comes to the rescue of the contractor in such cases and
helps in overcoming the losses in the event of disruption to the project
beyond his control
- This is specially designed to extend financial protection to civil
engineering contractors in the event of accidents or any other
disturbances occurring during the construction period
Scope of Cover:
- Who can take the Insurance?
All parties involved in any way in the construction may be insured:

Contractors
Firms commissioned to carry out the work, including subcontractors
The purchaser or owner
Parties financing the project

In order to avoid gaps in cover, a single insurance contract can be issued for the whole
project
incorporating all participants as insured parties.
What does Contractor's All Risk Insurance cover?
This is an All Risk policy covering sudden and unforeseen physical damage to civil
projects under construction insured by any cause or peril not specifically excluded under
the policy. Important Perils which will be covered include:

Fire and Allied Perils

Flood, storm, tempest & cyclone
Earthquake, fire & shock
Collapse
Water Damage for Wet Risks
Faults in erection/ construction
Human errors, negligence

What does Contractor's All Risk Insurance not cover?

War and Nuclear risks

Willful Act or Willful Negligence of the Insured
Partial/total cessation of Work
Defective material or bad workmanship
Normal wear and tear
Loss or damage due to faulty design. A professional indemnity policy may be
taken separately.
Disappearance or shortage (inventory losses)
Contractual liabilities
Consequential losses

What are the Add-On covers under Contractor's All Risk Insurance?

Express freight, Holiday and Overtime

Air freight
Breakage of glass
Additional customs duty
Removal of debris
Earthquake
Escalation
Storage at Fabricators Premises/ Workshop
Construction, plant & machinery
Cross liability
Third party liability
Maintenance visits cover and Extended Maintenance
Owners surrounding property
Terrorism

Key Advantages of the policy

-The Contractors All Risks Insurance provides comprehensive insurance solution
covering a wide range of risks to which a civil construction project is exposed to, starting
from arrival of construction material at site till completion of project.
-This policy is extremely useful for contractors, consulting engineers, architects and
financiers because it contribute to reducing the overall construction expenses offering
them protection against unforeseen accidents leading to financial losses under a single
policy.
Sum Insured

Total contract value including the cost of labour and materials supplied by the
owner to be declared separately. This break up costs simplify the assessment in
the event of a claim

Period of Contract
-The commencement of the cover is from the date of unloading the first batch of
materials at site and can be taken for a duration as relevant for the project.
-The policy expires with the handing over of the contract work to the owner
-It is advisable to take a sufficiently longer period for any contract work considering
possible delays in execution , since on expiry of the policy prior to completion of work,
the rates for extension are heavy and punitive.
Basis for settlement of claims
In the event of any loss/damage, the basis for settlement of claims will be:
- In case of damage which can be repaired, the cost of repairs necessary to restore
the property to the original condition immediately preceding the occurrence of
damage less the under insurance & excess
- In case of total loss, the actual value of property immediately before the
occurrence less salvage, under insurance and excess
Extensions
- Construction equipments like scaffolding , shuttering materials etc can be
separately declared and covered along with contract works
- Construction plant and machinery like mobile cranes, winches, diesel generators,
concrete mixers etc can be covered under the same policy as per the terms and
conditions of Contractors plant and machinery policy or can be covered
separately.

Erection All Risks Insurance

Erection All Risks policy is a comprehensive insurance, which provides complete
protection against all types of risks associated with erection, testing, commissioning of
machinery, plant and equipment during constructional stage.
Erection All Risks Insurance embraces a wide variety of plant and machinery at all levels
of complexity, ranging from the relatively straight forward positioning and connecting up
of single manufactured items of equipment such as small pumps or electric motors to
complete major industrial complex such as a large power station or manufacturing
facility.
Duration
The cover starts from the time of arrival of first consignment at site, normal storage and
thereafter during erection, testing, commissioning until the plant is successfully
commissioned and handed over.
Scope
Insurance is on an 'all-risks' basis and in particular includes

Fire, lightning, explosion, aircraft damage

Riot, strike, malicious acts
Flood, inundation, storm, cyclone and allied perils
Landslide, subsidence and rockslide
Burglary and theft
Faults in erection
Human errors, negligence
Short circuiting, arcing, excess voltage
Electrical and mechanical breakdown
Collapse, damage due to foreign objects, impact damages
Any other sudden, unforeseen, accidental damages not explicitly excluded

Sum Insured
The Sum Insured for the insurance should not be less than the Completely erected value
of the property inclusive of freight, customs duty and erection cost. Basically, insurance
should be for the contract price.
Extensions
Cover can be extended to include up to a limit chosen by you on the following on
payment of additional premium

Third party liability

Cross liability
Earthquake
Cost of removal of debris
Express freight, overtime charges
Air freight

Additional customs duty

Escalation
Owner's surrounding property
Storage risk at Fabricator's Premises
Maintenance cover-Visits, Extended maintenance
Dismantling

Exclusions: Some of the exclusions under the policy are

War Invasion
Nuclear Reaction Nuclear Radiation or Radioactive Contamination
Insured's Contribution - Deductible
Willful Act or Willful Negligence of the Insured
Cessation of Work
Defective Material or Bad workmanship
Wear Tear Corrosion Oxidation Deterioration
Breakage of Glass
Disappearance or Shortage (Inventory Losses)
Design Defects
Loss of files, drawings, cash, cheques etc,.
Consequential Loss
Terrorism

Excess (Deductible) : It is standard to apply excess to claims as neither the client nor the
insurer wishes to be troubled with handling small losses.
To comply with a client's wishes (e.g. contract conditions, financial policy or risk
management programme), higher excess may be applied, with a suitable reduction in
premium.
Wrap up Insurance

Definition of 'Wrap-Up Insurance '

A liability policy that serves as all-encompassing insurance which
protects all contractors and subcontractors working on a large
project.

Wrap-up insurance is intended for larger construction project
costing over $10 million. Two types of wrap-up insurance are ownercontrolled and contractor-controlled.
For example: The owner-controlled insurance program (OCIP) is purchased by the
owner on behalf of the builder or contractor. Included in the insurance are workers
compensation, general liability, excess liability, pollution liability, professional liability,
builder's risk, and railroad protective liability. While the cost of wrap-up insurance can be

expensive, it can also be divided among general contractors and sub-contractors, thus
spreading the cost.
IV). Contractors P&M/c. Policy (CPM):
Coverage:
 Unforseen and sudden Physical damages to CPEQ while at rest or in
operation as a result of fire, collision, impact of all kinds, over
toppling, crashing into ditches or down hill, flood & storm and other
AOG perils, theft and malicious damage.
 Property insurable: Mobile construction machinery, stationary plants
and temporary buildings. May be contractor owned or hired.
 Tools & tackles to be specifically covered and subject to depreciation.
 Mechanical and Electrical breakdowns are excluded unless caused by
external means.
Basis of Sum insured:
 New replacement value except for camps, hutments, workshops and
scaffoldings which should represent the actual value at the time of
concluding the Policy.
 Excess as applicable.
Basis of settlement:
 Repair cost without depreciation
 Total loss - Replacement value less depreciation less salvage.
Dismantling cost is payable.
 Exclusions as per CAR Policy.
v)Machinery Insurance (MBD):
 Damages during operations due to causes like human failure,
operational faults, product faults.
 Sum insured Replacement cost.
 Subject to excess and general & specific exclusions.
Boiler and Pressure plant insurance:
 Covers Pressure vessels of both fired and unfired against explosion /
implosion etc., other than by fire.
 Also covers surroundings properties.
 Subject to General & Specific Exclusions and Warranties.
 Sum insured to be replacement cost.

ALOP' Insurance: Project Owner's Pride

A project is where money is invested in anticipation of returns in future. You have a
project. There is a schedule: say-18 months. The project gets commissioned. The
production starts. Your business starts from the 19th month.
What happens if a project is delayed? The delay can be due to one or several incidents,
such as accidents during the transport of equipment from the suppliers' works to the
project site, damage during erection or commissioning.
The result is that, instead of 18 months, the schedule turns to 24 months, and the business
starts from the 25th month. It is late by 6 months!
While the owner, consultant, PMC contractor, subcontractors and others have to
make/receive payment under the normal Liquidated Damage (LD) Clause, the owner has
no cover for the loss of profit. That is where 'ALOP' Insurance comes in. It is a good
cover for project owners.
What does ALOP mean?
'ALOP' means 'Advance Loss of Profit.' The ALOP Insurance covers the owner for the
risk of losing profit. It is called 'Advance' because the insurance is taken before business
starts. It is taken during project implementation, before a plant is commissioned. The
insurance, in principle, follows characteristics of a Consequential Loss Policy during
operation, but is issued in advance of the actual start of business.
Here are some ALOP basics:
 The insure person in ALOP is the owner only
 Concurrent Material Damage (MD) insurance is a prerequisite
 Good co-operation among all parties is essential
 Insurance period is identical to MD erection period
Time & incidents
Since ALOP Insurance is a time-related coverage, an understanding of individual time
periods, dates and phases is important.
 Scheduled date of completion or scheduled date of commencement of the insured
business.
 'Delay' is the period between the scheduled completion/business commencement date
and the actual date on which business was commenced.
A major problem arises in distinguishing between the delay caused by an insured incident
and a non-insured incident. Also, a distinction must be made in:
 Commercial start-up
 Business commencement date
 Expected or approximate date of commencement of operations.
Contributing delay factors should be eliminated. Some are:
 Administrative disorganization
 Delay in shipment of supplies
 Shortage of funds leading to temporary interruption of works
 Deterioration of infrastructure
 Generally, all subsequent incidents which aggregate the delay but which have no direct
connection with the incident that caused material damage

Basis of loss adjustment

The adjustment of loss will consider:
 Whether the accidents which caused the delay are insured or not.
Date on which the business would have commenced if the insured delay did not occur.
 Results for 12 months after actual commencement.
 The expected loss in turnover.