CONSTRUCTORS ALL RISK INSURANCE:
DEFINITION, COVERAGE, BENEFITS, COST, CLAIMS

Constructor’s All Risks (CAR) insurance is a comprehensive project‑level policy that protects employers/contractors against physical loss or damage to the works and related construction property during erection, installation and construction.

A Contractor’s All Risk Insurance Policy has 2 sections:

Material Damage Section of Contractors All Risks Insurance Policy: The Material Damage Section of Contractors All Risk Insurance Policy covers Physical Loss or Damage to the property under construction. The Material Damage Section provides coverage for various perils as follows:
- Location Risks: It covers Material Damage to the Property Under Construction including materials stored at the site on account of perils such as Fire, Lightning, Theft and Burglary
- Handling Risks: It also covers damage to the Property under construction on account of Impact Damage, Collission, Failure of Cranes or Collapse
- Human Element Risks: A Contractor’s All Risk Insurance Policy also covers damage to the Property under construction on account of Human Element such as Carelessness, Negligence, Malicious Acts, Riots & Strike, Human Error.
- Major Perils/Act of God Claims: This section of Construction All Risks Insurance Policy covers damage to the Property under construction on account of Acts of God Perils such as:
- Fire and Lightning
- Earthquake, Fire & Shock
- Storm, Tempest, Floods, Inundation, Cyclone, (STFI) etc.
- Rockslide, Landslide, Subsidence, Lightning or other atmospheric disturbances
- Water Damage for Wet Risks ie Contract involving works in Rivers, Canals, Lakes or Sea
Third-Party Liability Section of Contractors All Risks Insurance Policy: Third-Party Liability Section of CAR Policy covers Bodily Injuries and Property Damage to Third-Parties because of Construction Activities.

What are the Add-On Covers in a Contractor’s All Risk Insurance Policy?

The Add-On Covers in a Contractor’s All Risk Insurance Policy are as follows:

Removal of Debris: The Removal of Debris Add-On Cover covers the costs of demolishing or removing debris of Property insured under the Material Damage Section.
Professional Fees: The Professional Fees Add-On Cover covers the fees of Architects, Surveyors and Consulting Engineers or other Professional Fees incurred in the reinstatement of the Insured Property following an admissible claim under Material Damage Section of the Policy,
Temporary Access Roads and other Temporary structures: The Temporary Access Roads Add-On Cover indemnifies the Insured for unforeseen accidental loss or damage to temporary access roads or other temporary structures etc if such loss or damage occurs prior to such roads being completed or taken into use for the intended purpose by the contractors. So, the Insurance Company pays for any accidental loss or damage to Temporary Access Roads or other Temporary Structures only during the construction phase. The moment the road is taken into use, it goes out of the Scope of Coverage of CAR Policy and no loss is payable. Also, Temporary Access Roads or other Temporary Structures are covered under the Policy subject to their values being declared separately in the Policy.
Owners’ Surrounding Property: Owners’ Surrounding Property extension covers loss of or damage to surrounding property of Owner located on project site if damage is caused directly due to the Erection, Construction or testing of the property covered under the policy. This extension is granted when a CAR policy is given for the expansion work carried out in the existing premises and cover does not apply to construction/erection machinery, plants and equipment including Temporary buildings.
Loss Minimisation expenses: The Loss Minimisation Expenses Extension says that in normal course, the Insured is supposed to take all steps to minimise further loss arising from that loss event. So, the Insured must try and prevent whatever further loss, or damage might happen to the Insured property following a loss and in the Process of Preventing further loss, if the Insured incurs an additional expense, this additional expense is payable under the Loss Minimisation Expense Extension of the Contractors All Risk Insurance Policy.
Escalation Clause: Escalation Clause in a Contractors All Risk Insurance Policy provides an automatic increase in the Policy Sum Insured upto selected % of Sum Insured and the Claim is settled at increased replacement/reconstruction cost as on date of loss subject to maximum of Sum insured of damaged item plus the selected % escalation cost. An Additional Premium is charged for opting for Escalation Clause in a Contractors All Risk Insurance Policy.
Additional Custom Duty Cover: Additional Customs Duty Add-On Cover provides compensation for Additional Custom Duty Incurred than what has been Insured for importing damaged parts at the time of loss.
Storage Risks at the Fabricator’s Premises: Storage Risks at the Fabricator’s Premises Extension covers loss or damage to Project material that happens at the Fabricator’s Premises or Workshop by a Peril not excluded under the CAR Policy subject to of all fabricator locations being declared in the Policy.
50:50 Clause: The 50:50 Clause in a Contractor’s All Risk Insurance Policy addresses the apportionment of loss or damage to the Insured Property when the cause of damage cannot be definitively determined. The Clause is used when it is not clear whether the damage to the Insured Property occurred during the Transit Stage when the Project materials were being transported to the project site or during the Construction Stage. In such a scenario, the loss is shared equally between the Marine Insurance Policy and the CAR Insurance Policy, provided that the 50:50 clause is included, in both, the CAR and Marine Insurance Policy.
Cross Liability Cover: The Cross Liability Cover in in a Contractors All Risk Insurance Policy extends the Third-Party Liability Cover of the CAR Policy to cover subcontractors named in Policy schedule as if a separate policy has been issued to each party. That means if the property of one contractor is damaged by other contractor while carrying out their defined scope of work, such losses are payable under Cross Liability Cover.
Extended Maintenance Period Cover: The Extended Maintenance Cover in in a Contractors All Risk Insurance Policy provides coverage for Loss or Damage to the Contract Works
- caused by the Insured contractor(s) in the course of the operations carried out for the purpose of complying with the obligations under the maintenance provisions of the contract.
- occurring during the maintenance period provided such loss or damage was caused on the site due to faults and errors made during the erection period.
Cover For Insured Contract Works Taken Over or Put into Service: The Put to Use Clause or Put into Service Extension covers loss or damage to parts of the insured contract works taken over or put into service if such Loss or Damage emanates from the construction of the items insured under Section 1 (Material Damage Section). The Insurance Company will pay for losses or damage to parts of Insured Contract Works provided that such losses emanate from the Construction Work. If the Construction Work of the Project results in damage to Insured Contract Works, then only the loss becomes payable under the “Put to Use” Clause. The “Put to Use” Clause will not Cover Loss or Damage to Insured Contract Works due to AOG Perils such as Earthquakes, Floods, Storms etc.

What are the benefits of a Contractors All Risk Insurance Policy?

The Benefits of a Contractor’s All Risk insurance Policy are as follows:

Financial Protection: A CAR policy helps contractors manage the risks associated with construction projects.
Peace of Mind: A CAR policy provides peace of mind to the contractors as they are aware that they are secured against unforeseen accidents and thus they can focus on completing the job
Protection against liability: A CAR Policy also provides coverage for Bodily Injury and Property Damage to third-parties which can result in costly lawsuits.

Who typically purchases CAR insurance?

Typical purchasers of CAR (Contractors’ All Risks) insurance are:

Project owners/employers commissioning construction or installation works
Main contractors (turnkey, EPC, building contractors)
Subcontractors (often required to carry cover or be included)
Developers undertaking building projects or infrastructure works
Plant/equipment suppliers for on‑site installation projects
Joint venture consortia on large projects
Government bodies or agencies procuring construction contracts

Contracts often specify which party must insure (employer vs contractor) and required limits/endorsements.

What is the Sum Insured under a Contractors All Risk Insurance Policy?

The Sum Insured under a Contractor’s All Risk Insurance Policy is the estimated completed value of the Project. Now, if the project duration is 3 years, the Contractor should declare the total construction cost to be incurred over the duration of 3 years. Otherwise, it will attract underinsurance at the time of claim. The following points have to be considered while calculating the estimated completed value of the project under a Contractors All Risk Insurance Policy:

Cost of imported and indigenous supplies of Plant & Machinery and Construction material to be used in the project such as plant and machinery, building material, specific machinery, whether they are imported or indigenous. In some cases, imported machinery is also involved and that also has to be included while calculating cost.
Freight: All types of Freight Costs such as Ocean Freight, Air Freight which is likely to be spent by the Insured as Transportation Cost up to the site of construction must be added while calculating the Sum Insured under a Contractors All Risk Insurance Policy.
Custom Duties: Custom Duties are an important component in case of imported machinery which has to be added while calculating the Sum Insured under a CAR Policy.
Cost of Construction: Cost of Construction mainly includes labour cost and other miscellaneous expenses such as electricity expenses at the construction site, hiring expenses for any machinery which is hired, salary expenses for temporary and permanent labour. Such expenses must be included while arriving at the Sum Insured for Contractor’s All Risk Policy. Cost of Construction will also include the cost of temporary construction works which is constructed to facilitate the construction of the civil structure. These temporary works are dismantled after the construction of the civil structure.
Permanent Civil Engineering Works: All Permanent Civil Engineering Works have to be declared separately with a separate Sum Insured for a Contractors All Risk Insurance Policy. The Sum Insured for Permanent Civil Engineering Works has to be added to the Policy Sum Insured for a Contractors All Risk Insurance Policy. So, the permanent blocks, which will remain there after the completion of work, like a boiler house building, powerhouse buildings or godowns etc. have to be mentioned separately in the Contractor’s All Risk Insurance Policy Copy.
50% of the Escalated amount if Escalation is opted for: There is a provision in Contractor’s All Risk Insurance Policies to opt for Escalation to take care of mid-term increase in expected cost of construction or project completion cost.

Note that Pre-Operative Expenses such as Technical Consultants Fees, Project Financing Expenses, Site Leveling Expenses or Soil Testing Expenses or any other expenses which are not required to be incurred during the course of construction are not to be included in the Policy Sum Insured.

Can CAR insurance cover delays in project completion due to unforeseen events?

Not by default. Standard CAR covers physical loss or damage to the works and related liabilities.

CAR insurance can include coverage for delays through an optional extension called Advance Loss of Profits (ALOP) or Delay in Start-Up (DSU) insurance. This covers financial losses due to project delays caused by insured events, such as damage to the construction works. However, delays due to non-insured events (e.g., labor disputes or financial issues) are typically excluded. ALOP/DSU coverage must be explicitly requested and is subject to additional premiums.

Practical points:

DSU/ALOP must be arranged at placement—retroactive cover is rare.
Insurers require clear revenue/turnover basis, financial projections and proof of delay impact.
Exclusions often apply (e.g., non‑physical causes, contractual penalties, gradual deterioration, war/strikes unless endorsed).
Consider combined wording with CAR and review limits, waiting period and reinstatement terms with your broker.

Are subcontractors’ activities included in the coverage of a CAR insurance policy?

Yes, subcontractors’ activities are typically included under a CAR policy, as the policy is designed to cover the entire project, regardless of who performs the work. Key points:

CAR typically insures the contract works, plant, materials and temporary works on site regardless of who (contractor or subcontractor) causes loss, so damage arising from subcontractors’ work is usually covered.
Many policies extend cover to subcontractors’ plant/equipment and their liability exposures, but insurers often require subcontractors to be named or included via endorsement or to carry their own insurance as per contract.
Insurers may impose warranties or conditions (e.g., approved subcontractors, competence/qualification, compliance with safety procedures).
Subcontractor negligence is covered unless specifically excluded (e.g., faulty design by a specialist designer may be excluded unless endorsed).
Contract clauses frequently require subcontractors to be insured and/or indemnify the main contractor; confirm who is primary insured and whether indemnity/recovery rights apply.

Check the CAR policy wording for “who is insured”, subcontractor extensions, required endorsements, and any exclusions; confirm contract insurance clauses and obtain evidence of subcontractors’ insurance where needed.

How are premiums for CAR insurance calculated, and what factors influence the cost?

CAR premiums are calculated by underwriting the project’s exposure and applying a rate to an agreed exposure basis (typically contract sum, reinstatement value, or declared turnover for project stages), then adjusting for deductibles, extensions and insurer factors. Key cost drivers:

Project value & contract sum: larger sums = higher absolute premium and often higher rate for complex projects.
Scope & complexity: technical, M&E‑heavy, phased or EPC/turnkey projects attract higher rates.
Duration/period of insurance: longer construction/commissioning periods increase premium.
Site location & environment: remote, geologically unstable, flood/earthquake‑prone or high‑crime sites raise costs.
Construction method & materials: temporary works, heavy lifts, high‑risk activities (blasting, piling) increase risk.
Contractor/subcontractor quality: contractor experience, safety record and financial strength affect pricing.
Risk controls & mitigation: strong HSE programmes, security, testing regimes and QA reduce rates.
Claims history: previous losses or frequent small claims increase premium or lead to stricter terms.
Coverage scope & extensions: inclusion of third‑party liability, transit, testing/commissioning, debris removal, professional indemnity exclusions, and DSU/ALOP (delay) endorsements raise cost.
Perils insured and sub‑limits: adding catastrophe perils (earthquake, flood) or recall/contamination cover typically increases premium.
Deductible/SIR level and limits: higher self‑retention lowers premium; higher limits raise it.
Market cycles & reinsurance costs: insurer appetite, capacity and reinsurer pricing materially affect rates.

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

Period of Cover under a CAR Policy starts from the date of arrival of first consignment at site and unloading of the property at the site and expires on completion and handing over of the project to the principal or on the date as specified in the schedule, whichever is earlier.

The Contractor’s All Risk Insurance Policy will start from the date of arrival of first consignment at site and the premium is also supposed to be charged from that date and the Policy will expire when the Project is completed and handed over or the policy will expire on the end date even if the project is not completed.

What is the Claims Process for Contractors All Risk Insurance Policy?

Once the Insured Property has been damaged, the Insured needs to follow the below steps to file a claim under a Contractors All Risk Insurance Policy:

Claim Intimation: The Insured should intimate the claim as soon as possible to the Insurance Company which will register a Claim. The Insured must provide details like Date, Time and Location of the Damage Incident, Loss or Damage to Assets, Brief Description of the Accident, while registering a Claim.
Surveyor Appointment: The Insurance Company appoints a surveyor who visits the affected site for investigation.
Document Submission: The Insured needs to submit the documents required for a Fire Insurance Claim such as ID Proofs, GST Certificate, Claim Form, FIR Reports, Report of Damaged Assets etc.
Claim Assessment and Settlement: The Insurance Company assesses the Claim based on Documents submitted and Surveyor Reports. If the Claim is admissible, the Insurance Company settles the Claim as per the Contractors All Risk Insurance Policy Terms and Conditions

What exclusions are commonly found in a CAR insurance policy?

The main exclusions under a Contractor’s All Risk Insurance Policy are as follows:

War: A Contractors’ All Risk Insurance Policy excludes loss or damage due to War
Negligent Acts: A Contractors’ All Risk Insurance Policy excludes loss or damage due to Negligent Act or Willful Act of the Insured
Normal Wear and Tear: Loss or Damage due to Normal Wear and Tear or Gradual Deterioration is not covered under a CAR Policy
Inventory Loss: Loss discovered at the time of taking inventory is not covered under a CAR Policy
Nuclear Acts: Loss or Damage due to Nuclear reaction, Nuclear radiation or Radioactive contamination is not covered under a Contractors All Risk Insurance Policy
Faulty Workmanship: A Contractors’ All Risk Insurance Policy excludes loss or damage due to Faulty Workmanship

Are temporary structures, like scaffolding or site offices, covered under CAR insurance?

Yes — temporary works (scaffolding, site offices, formwork, hoardings, cranes’ temporary parts, etc.) are typically covered under a standard CAR policy as part of the contract works, but coverage depends on the policy wording and any endorsements. Key points:

Usually included: temporary works and site plant/equipment while on site are insured as part of the works or as contractors’ plant.
Conditions: insurers may require these items to be declared, meet specified security/HSE warranties, and be maintained per manufacturer/safety standards.
Limits/exclusions: some policies apply sub‑limits, higher deductibles or specific exclusions (e.g., theft from unattended sites without forcible entry, gradual deterioration, or wear & tear).
Subcontractors’ temporary works: covered if the policy wording includes subcontractors or if subcontractors are named/endorsed; otherwise obtain evidence of subcontractors’ insurance.
Best practice: declare temporary works at placement, keep inventories/photos, ensure security measures, and confirm wording (theft/security, plant vs works definition) with your broker/insurer.

How does CAR insurance interact with other policies, such as professional indemnity insurance?

CAR covers physical loss/damage to the works and site‑related liabilities during construction; professional indemnity (PI) covers negligent design, advice or professional services. They are complementary but distinct:

CAR (first‑party/property + optional third‑party liability) responds to physical damage or third‑party bodily injury/property damage caused by construction activities.
PI (claims‑made) responds to financial loss arising from professional negligence, design errors, specification mistakes or advice (no physical damage trigger required).

Interaction points:

Overlap: if a design defect causes physical damage, CAR typically covers the physical loss while PI may cover the cost of rectifying the design error and professional defence costs. Insurers may seek recovery (subrogation) between policies.
Exclusions/coordination: PI often excludes losses arising from physical damage that are covered by CAR; CAR may exclude pure financial loss from professional error.
Contractual allocation: construction contracts often allocate which party must insure which risk (employer vs contractor vs consultants). Ensure policy wordings and indemnity clauses align with contract requirements.

Are design defects or faulty workmanship covered under CAR insurance?

Usually no—design defects and faulty workmanship are typically excluded under standard CAR wording, though limited cover or endorsements may be available.

Details:

Faulty workmanship/materials: Losses caused solely by poor workmanship, defective materials or gradual deterioration are commonly excluded.
Design defects: Pure design errors (professional negligence by designers/engineers) are normally excluded and sit with professional indemnity (PI) insurance.
Resulting damage: If a design or workmanship defect causes sudden physical damage to other insured property (e.g., a defective bolt fails and collapses part of the structure), CAR may cover the resultant physical damage even if the root cause (defect) is excluded—coverage depends on the policy wording and causation analysis.
Endorsements and extensions: Insurers can sometimes provide limited cover for faulty workmanship or design‑related losses via specific endorsements (at extra premium) or by buying PI/Latent Defect/Contract Works extensions—terms vary widely.

Can CAR insurance be customized to include specific risks unique to a project?

Yes. CAR policies are routinely tailored to a project’s specific risks via endorsements, extensions and bespoke terms. Common customisations include:

adding or widening third‑party liability limits and additional insureds;
including transit, testing & commissioning, and temporary works cover;
buying earthquake, flood or other catastrophe endorsements or sub‑limits;
adding theft cover for unattended sites or higher sub‑limits for plant;
securing Delay in Start‑Up / ALOP (DSU) for financial losses from delayed completion;
extending cover for existing structures, latent defects or run‑off/extended reporting;
specifying jurisdictional/territorial wording (e.g., worldwide or US exposure) and defence‑costs treatment;
bespoke warranties or conditions (safety measures, contractor qualifications) and tailored deductibles/SIRs.

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