INTRODUCTION
Contractors All Risks (CAR) Insurance is a relatively modern branch of Engineering Insurance. The basic concept of CAR Insurance is to offer comprehensive and adequate protection against loss or damage in respect of the contract works, as well as for third party claims in respect of properly damage or bodily injury arising in connection with the execution of a civil engineering project.
With the rapid developments of technology, which has also occurred in the civil engineering field, the variety and complexities of civil construction work, the growth in the value of individual building projects and the intailing increase of the technical and economic risks during construction, have resulted in an increasing demand for CAR Insurance Protection all over the world. In addition, owing to increasingly keen competition, contracting firms find it difficult to adequately measure and provide for a sufficient margin in their tender calculation for the hazards incidental to construction. Since Insurance premium can be calculated much more accurately by a professional Insurer than the hazard margin by a contractor, CAR Insurance contributes to reducing the overall construction expenses and at the same time offers efficient financial protection for all parties concerned.
There is, therefore an increasing tendency on the part of principals including Government Departments, consulting engineers, artechitects and financiers to make the conclusion of a CAR policy a condition of the contract.
INSURED
CAR insurance may be concluded by
the principal
the contractors engaged in the project, including all subcontractors.
In order to prevent overlaps or gaps in the cover provided CAR Insurance should be concluded for all parties concerned, the policy being issued to cover the several parties for their respective rights and interests.
SUBJECT MATTER INSURED
CAR Insurance can be taken out for all buildings and civil engineering projects, such as:
residential and office buildings, hospitals, schools & theaters.
factories, power plants,
roads and railway facilities, airports,
bridges, dams, tunnels, water supply and drainage systems, canals & harbours.
The covers relates to the following
Bantras Works:
This denotes the property being erected including preparatory work on the site, such as excavation, grading and leveling work, the execution of temporary structures like diversion and protective dams etc.
Temporary Structures & Equipments:
This includes workers’ temporary accommodations, storage sheds, scaffolding, construction utilities for temporary electricity, water supply etc.
Construction Machinery:
This includes earthmoving equipments cranes and the like as well as site vehicles not licensed for use on public roads no matter whether such machinery is owned or hired by the contractors. These are to be covered under separate CPM policy.
Costs for Clearance or Debris:
This term implies the expenses incurred for the removal of debris from the site in the event of a loss indemnifable under the policy.
Third Party Liability:
This refers to legal liability arising out of property damage or bodily injury suffered by Third parties and occurring in connection with the contract work on or near the building site. However, the cover does not extend to indemnify insured against any claims from the Insured’s employees or workmen who are connected with the construction project.
Surrounding Property:
The term implies properly located on the site as well as property surrounding the site. A distinction is made however, between.
property belonging to or held in care, custody or control of persons named in the policy as the insured (in this case cover is only granted by way of an endorsement), and
property belonging to or held in care, custody or control of persons, who may be regarded as third parties for the purposes of the policy, i.e. persons who are neither Insurers nor Insured (in this case Indemnity is payable according to the principals of third party liability cover, of the CAR policy)
SCOPE OF COVER:
CAR Insurance provides an “all risk” cover every hazard is covered which is not specifically excluded. This means that almost any sudden and unforeseen loss or damage occurring during the period of Insurance to the property insured on the building site will be indemnified. The most important causes of loss indemnification under CAR Insurance are:
fire, lightning & explosion.
flood, inundation, rain, snow availanche, wind storm.
earthquake, subsidence, landslide, rockslide.
theft, burglary.
bad workmanship, lack of skill, negligence, malicious act or human error.
CAR Insurance also covers loss of or damage to building material on site, transport, intermediate storage or during assembly or disassembly.
The cover provided for in CAR Insurance is only subject to a few exclusions which the international insurance market usually applies. These are normally what are termed as uninsurable risks. These exclusions are named in the policy and essentially comprise.
loss or damage due to war or warlike operations, civil commotion cessation of work, requisition by order of any public authority.
loss or damage due to wilful act or wilful negligence of the insured or of his representatives.
loss or damage due to nuclear reaction, nuclear radiation or radioactive contamination.
consequential loss of any kind or description whatsoever such as claims from penalty losses due to delay, loss of contract.
loss or damage due to mechanical and/or electrical breakdown or derangement of construction machinery, plant and equipment (i.e. loss or damage not caused by exterior influences, whereas any physical loss of or damages to the building project resulting there from is covered)
loss or damage due to faulty design.
the cost of replacement, repair or rectification of any deficiencies in the contract works (i.e use of defective or inadequate material). However, loss of or damage to correctly executed items resulting from the inadequacy of other items of the contract work is generally under the CAR Insurance.
PERIOD OF COVER:
The cover attaches from the commencement of work or after the item entered in the schedule of the policy have been unloaded at the site and terminates when the completed structure or any completed part there of is taken over or put into service. In addition, it is possible to extend the period of cover to include a maintenance period.
CALCULATION OF SUM INSURED AND PREMIUM:
Sum Insured:
Sum Insured:
The sum insured must be equal to the amount stated in the building contract, plus the value of any construction material supplied and/or additional work performed by the principal. Any increase in the contract sum must be notified immediately to the Insurers in order to avoid under insurance.
Usually, separate sums insured are fixed for:
construction machinery and construction plant and equipment (the relevant sum insured must be equal to the replacement value applicable when the contracts is concluded, including freight, crection costs and customs duties)
existing buildings and clearance of debris (in this connection it is essential that the respective sums insured are adequate)
Third party liability cover is likewise subject to a separate limit of indemnity for any one accident or series of accidents out of one event.
Premium:
The premium rates for CAR insurance are based on the nature of project and period of contract taking into account peculiarties of each individual project. Basically, the following factors are considered for proper risk assessment:
experience and ability of the contractor.
conditions on and exposure of the site e.g. the probability of earthquakes, flood, inundation.
design features and building materials.
construction techniques.
safety factor considered in the construction time schedule.
measures provided to ensure safe execution of the project.
To be able to arrive at premium rate which is reasonable and commensurates with the risks involved, the insurers must be given an opportunity of checking the building contract, drawings specification, construction time schedule as well as other relevant information. The more complete the information given to the Insurers the more accurate the assessment of the risk will be and the more appropriate and fair the premium for the insured.
If it is not possible to complete a project within the policy period the insurance may be extended, subject to the payment of an additional premium.
While the CAR policy undertakes to indemnify the insured against loss or damage specified in the policy, it is customary to make the insured responsible for a small portion of the loss. This is achieved by stipulating a deductible.
A deductible is stipulated for each CAR insurance. This is the share in each and every loss which the insured has to bear for his own account and which is thus deducted from the measure of indemnity. The deductible varies according to the type and size of a building project and the hazards involved in each individual case. The purpose of each deductible is to stimulate the Insured’s interest in loss prevention and to relieve the insurers as also the insured from dealing with the many minor losses where the administrative expenses incurred would be excessive compared with the indemnity.
Usually, separate deductibles are applied for the contract works, the temporary structures, for normal losses and losses due to Act of God peril, & collapse.
The limit of indemnity overall is the sum insured.
Maintenance Period :
Usually, the building contract provides for a maintenance period of 12 months after the completed structure has been taken over. For this period maintenance cover can be granted under the CAR policy. The following types of cover are available.
Maintenance Visits Cover:
The insurer’s liability during the maintenance period is limited to loss or damage caused by the insured in the course of the operations carried out for the purpose of complying with obligations under the maintenance provisions of the contract.
Extended Maintenance Cover:
In addition to the protection provided under maintenance visits cover this type of cover also includes loss or damage arising out of faulty workmanship, carelessness etc. during the erection period.