Contractors All Risks policy is commonly called CAR policy. It is designed to protect interests of
contractors & principals engaged in projects majorly involving the civil construction work.
The insured contract works includes all the operations to be carried out by a contractor as per the
contract.
CAR insurance provides Comprehensive cover for the entire project majorly involving the civil
engineering work from time of arrival of first materials at site till the work is over. It may also cover
risk during maintenance period (after project is over) at the option of insured for which an
additional premium is charged.
The policy provides All Risk cover for sudden & unforeseen losses. But All Risk cover does not
mean covering all the perils. Rather it means loss/damage from covering all the perils EXCEPT those
specifically excluded in the policy.
The property covered includes property related to the complete project at the project site during
storage & construction including materials & supplies.
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The CAR policy can also be issued in joint names of Principal & Contractors.
CAR COVERAGE:
The policy provides coverage under two sections:
Section I Material damage
Section II Third party liability (TPL)
Section I Material damage
This section coves loss/damage to the property of project. It is a comprehensive
cover on All Risk basis. It covers sudden & unforeseen loss/damage to the insured
property from any cause EXCEPT the. specified exclusions
The examples of covered perils under Section I Material damage include:
Fire & allied perils
Theft, burglary
Collapse, collision, Impact
Flood, storm & allied perils
Accidental loss/damage during construction due to:
Falling, dropping
Lack of skill
Negligence
Human error
Malicious act
Defective workmanship
Defective material (But the cost of defective material itself is not covered)
(Note: Faulty design is not covered as it is specifically excluded)
Section II Third party liability (TPL)
Section II covers insureds legal liability to third parties for their injury /property
damage caused by activities related to the insured project.
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Question:
The subject damage will be covered under:
a. Maintenance visits cover
b. Extended Maintenance cover
c. Both Maintenance visits cover & Extended Maintenance cover
d. Under none
Answer: b. Extended Maintenance cover
Many a times the project is not completed on time and is delayed. The original policy period can
be extended at the insureds request on payment of additional premium. The additional
premium depends on the length of the extension period.
SUM INSURED
Insured has to declare sum insured separately for:
Material damage section and
TPL section (if opted)
The sum insured must represent the estimated complete erected value of project.
For section I, the completed erected value includes items like:
Cost of materials
Wages
Freight
Custom duties
Items supplied by principal, etc.
The values for the sum insured should represent the current new replacement costs of the
items.
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Sum insured
----------------------------------------------------- X Assessed loss amount
Actual amount required for insurance
= Rs. 1,00,00,000
= Rs. 30,00,000
= Rs. 1,50,00,000
Whether average is applicable or not and how much claim amount is payable?
Solution:
As S.I. is less than the value of project on date of loss, there is underinsurance. Hence, average
is applicable.
The claim amount payable = (S.I. / Actual value on date of loss) X Assessed amount of loss
= (1,00,00,000/1,50,00,000) X 30,00,000
= Rs. 20,00,000
CASE STUDY 2 ON AVERAGE:
Please read the following details:
S.I. of project
= Rs. 2,00,00,000
Assessed amount of loss
= Rs. 30,00,000
Value of complete project on date of loss = Rs. 1,75,00,000
Whether average is applicable or not and how much claim amount is payable?
Solution: As S.I. is not less than the value of project on date of loss, there is no underinsurance.
Hence, average is not applicable. Hence full assessed loss amount payable = Rs. 30, 00,000
Prof. Anupam Suri (9810624914)
Fellow & Double Associate in Insurance (India); CPCU, AINS, HISC & TTT (U.S.A.); IF1 (U.K.)
Page 8
The sum insured of material damage section is adjustable at end of policy period. At policy inception,
the sum insured is declared on the basis of the estimated project value. Hence, initially provisional
premium is charged. Only on project completion, the insured knows the actual project value which is
declared to the insurer. Hence, the sum insured is adjusted at the expiry of the policy period or
completion of construction work.
The insured is required to declare the actual value of the completed project on which final premium is
calculated. On adjustment, either additional premium is charged or excess premium is refunded.
But no adjustment of the sum insured is made because of any change in the prime costs of the
materials. The sum insured is adjustable on the basis of actual expenses towards the following items on
completion of the project:
Wages,
Freight,
Custom Duties, etc.
SUPPLEMENTARY COVERS
Several following supplementary covers can be taken by insured under CAR policy on payment
of the additional premium:
TPL cover (under Section II)
Maintenance cover
Construction Plant & Machinery (CPM) Cover
Removal of Debris
Overtime, express freight, etc.
Air freight
Additional custom duty
Temporary works/structures
Escalation
The above supplementary covers are taken as extensions under the CAR policy through
endorsements. For each supplementary cover, a separate limit of insurance is to be selected by
the insured. The limits are expressed as amounts in rupees and or as a percentage.
For example, TPL cover (Under Section II) for Rs. 20,00,000
Removal of Debris cover for Rs. 5,00,000
Escalation for 5% of S.I. (Section I)
`
TPL COVER:
Sum insured for TPL Section: A separate sum insured is to be selected by insured for this
section. This sum insured represents the insurers limit of TP liability. This cover is granted for
Prof. Anupam Suri (9810624914)
Fellow & Double Associate in Insurance (India); CPCU, AINS, HISC & TTT (U.S.A.); IF1 (U.K.)
Page 9
the third party liability arising out of the project work. It covers insureds liability from accidental
injury to third party person &/or damage to third partys property.
The TPL coverage is subject to the following limits specified in the policy:
Any one accident (AOA) limit (all liabilities from single accident)
Any one period (AOP) limit (cumulative amount from all liabilities from all
accidents occurring during policy period)
Generally, there is a cap on maximum TPL limit for which cover can be taken under CAR policy.
In case insured wants cover for more than that amount, it can be taken under a separate TPL
policy under miscellaneous department.
For TPL cover, the rate applicable is 100% of the basic CAR rate (i.e. same rate).
There is no average clause applicable in case of TPL cover.
CONSTRUCTION PLANT & MACHINERY (CPM) COVER:
This cover is granted for the construction plant & machinery to be used at the project site.
The construction plant & machinery is covered on new replacement value basis.
It excludes damage directly by its own mechanical or electrical breakdown or derangement.
Like for TPL cover, there is a maximum limit up to which this cover can be taken under CAR
policy. For the amount beyond the prescribed limit, the insured needs to take a separate CPM
policy as per rate & excess of the CPM policy.
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Premium on Surrounding property = Rs. 1,000 (2%o on 5,00,000, 2%o being 50% of basic rate
of 4%o)
EARTHQUAKE COVER:
There are 4 earthquake zones:
ZONE I (Most earthquake prone zone)
ZONE - II
ZONE - III
ZONE IV (Least earthquake prone zone)
For the risks situated in zone III or IV, the earthquake cover is automatic under CAR policy.
For risks situated in zone I or II, the earthquake cover is not automatic and is optional for
insured. The insured may choose to cover it by paying additional premium.
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Beyond 3 months
(per month rate)
1.50 %o
.02
1.70
.02
Roads In township
1.50
.03
2.25
.02
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POLICY CONDITIONS
Some of the policy conditions are as follows:
Notification of any material change in the risk to be immediately given to the insured
and and payment of additional premium to be made if required by the insurer.
Notice of claim to be given within 14 days of the loss.
Insurers rights of recovery (under subrogation) must be preserved by the insured.
Contribution will be applicable, if the loss is covered under more than one policy by
different insurers.
The differences regarding amount/quantum of claim are to be submitted to arbitration
(provide the claim is otherwise payable).
If the claim is found to be fraudulent, all benefits under the policy are forfeited.
Basis of Indemnification:
The loss may be of the following types:
Partial loss (repair of damaged item can be done)
Total loss
Total Loss may be of following types:
Repair cannot be done
Item stolen/misplaced
Constructive total loss or CTL
Constructive total Loss (CTL): This is a loss in which the damaged item can be repaired
but the cost of repairs exceeds replacement value of property immediately before the
date of loss. For example, if the value of the damaged item is Rs. 1,00,000 and its repair
cost is Rs. 1,05,000, the insurer treats it as total loss though the item is repairable. Such
loss is called Constructive Total Loss or CTL.
Partial loss: If the damaged item can be repaired, the cost of repairs is paid.
Total loss: In case of total loss, the insurer pays the actual replacement value of the item
immediately before the date of loss.
Prof. Anupam Suri (9810624914)
Fellow & Double Associate in Insurance (India); CPCU, AINS, HISC & TTT (U.S.A.); IF1 (U.K.)
Page 14
Reinstatement premium of Rs. Rs. 3650 is to be paid by the insured for reinstatement of the S.I. to
original value of Rs. 2,00,00,000.
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Property covered: Complete project during erection of plant & machinery including incidental civil
work, like, machinery foundation works.
In case the project work combines civil works and erection of machinery, the EAR policy is issued if
the cost of machinery erection work is more than 50% than that of civil works.
EAR policy provides Comprehensive cover for the entire plant & machinery erection From time of
arrival of first materials at site Till the work is over.
It may also cover risk during Testing Period (after erection is over) - One month erection period is
automatically covered. The cover for Testing Period beyond One month is at option of insured for
which additional premium is charged.
It may also cover maintenance period at option of insured for which additional premium is charged.
The policy provides All Risk cover for sudden & unforeseen losses. But All Risk cover does not
mean covering all the perils. Rather it means loss/damage from covering all the perils EXCEPT those
specifically excluded in the policy.
The property covered includes property related to the complete project at the project site during
storage & construction including materials & supplies.
The EAR policy can also be issued in joint names of Principal & Contractors.
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EAR COVERAGE:
The policy provides coverage under two sections:
Section I Material damage
Section II Third party liability (TPL)
Section I Material damage
This section coves loss/damage to the property of project. It is a comprehensive
cover on All Risk basis. It covers sudden & unforeseen loss/damage to the insured
property from any cause EXCEPT the. specified exclusions
The examples of covered perils under Section I Material damage include:
Fire & allied perils
Theft, burglary
Collapse, collision, Impact
Flood, storm & allied perils
Accidental loss/damage during construction due to:
Falling, dropping
Lack of skill
Negligence
Human error
Malicious act
(Note: EAR policy does not cover Defective workmanship, Defective material
and faulty design CAR policy covers Defective workmanship and Defective
material but not faulty design)
Section II Third party liability (TPL)
Section II covers insureds legal liability to third parties for their injury /property damage
caused by activities related to the insured project.
To Remember:
EAR policy
CAR policy
Defective workmanship
Not Covered
Covered
Defective material
Not Covered
Covered
faulty design
Not Covered
Not Covered
Peril
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Unloading
Trial/test run
4 weeks
FROM: time after first unloading of property specified in policy from any conveyance at the site
TILL: First test operation or test loading, But not beyond 4 weeks of trial run after completion of
erection, whichever is earlier.
(Note: Premium is calculated for the period from the time of arrival of first consignment of materials at
the site even if insurance is requested at a later stage).
The cover beyond 4 weeks of trial run after completion of erection is available on payment of additional
premium.
DISMANTLING COVER: Insured can also take cover for DISMANTLING (of second hand machinery).
The premium for dismantling is generally @ 60% of EAR rate irrespective of period of dismantling.
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SUM INSURED
Insured has to declare sum insured separately for:
Material damage section and
TPL section (if opted)
The sum insured must represent the estimated complete erected value of project.
For section I, the completed erected value includes items like:
Landed cost of imported materials at site
Landed cost of indigenous materials at site
Cost of erection
Permanent civil engineering works, etc.
The cost of imported materials includes:
Custom duty paid on clearance
Clearing & forwarding charges to the agents
The cost of erection:
Includes cost of visits of specialists/supervision charges
Does not include pre-operative charges
The values for the sum insured should represent the current new replacement costs of the
items.
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It is similar to cover under CAR policy (Please refer to page no. 4-5 above)
ADJUSTMENT OF SUM INSURED OF MATERIAL DAMAGE (SECTION I): Same as for CAR (Page 9)
SUPPLEMENTARY COVERS
Several following supplementary covers can be taken by insured under CAR policy on payment
of the additional premium:
TPL cover (under Section II)
Maintenance cover
Storage risk at fabricators premises/workshop
Intermediate storage
Construction Plant & Machinery (CPM) Cover
Removal of Debris
Prof. Anupam Suri (9810624914)
Fellow & Double Associate in Insurance (India); CPCU, AINS, HISC & TTT (U.S.A.); IF1 (U.K.)
Page 21
The above supplementary covers are taken as extensions under the CAR policy through
endorsements. For each supplementary cover, a separate limit of insurance is to be selected by
the insured. The limits are expressed as amounts in rupees and or as a percentage.
For example, TPL cover (Under Section II) for Rs. 20,00,000
Removal of Debris cover for Rs. 5,00,000
Escalation for 5% of S.I. (Section I)
`
TPL COVER: (Same as for CAR)
Sum insured for TPL Section: A separate sum insured is to be selected by insured for this
section. This sum insured represents the insurers limit of TP liability. This cover is granted for
the third party liability arising out of the project work. It covers insureds liability from accidental
injury to third party person &/or damage to third partys property.
The TPL coverage is subject to the following limits specified in the policy:
Any one accident (AOA) limit (all liabilities from single accident)
Any one period (AOP) limit (cumulative amount from all liabilities from all
accidents occurring during policy period)
Generally, there is a cap on maximum TPL limit for which cover can be taken under CAR policy.
In case insured wants cover for more than that amount, it can be taken under a separate TPL
policy under miscellaneous department.
For TPL cover, the rate applicable is 100% of the basic CAR rate (i.e. same rate).
There is no average clause applicable in case of TPL cover.
CONSTRUCTION PLANT & MACHINERY (CPM) COVER: (Same as for CAR)
This cover is granted for the construction plant & machinery to be used at the project site.
The construction plant & machinery is covered on new replacement value basis.
It excludes damage directly by its own mechanical or electrical breakdown or derangement.
Like for TPL cover, there is a maximum limit up to which this cover can be taken under CAR
policy. For the amount beyond the prescribed limit, the insured needs to take a separate CPM
policy as per rate & excess of the CPM policy.
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It covers damage to insureds other property lying at or adjacent to project site and belonging to
or held in care, custody or control of the principal or the contractor. A separate sum insured to
be mentioned for covering this property.
For surrounding property, the rate applicable is 50% of the basic CAR rate.
CLEARANCE & REMOVAL OF DEBRIS (Same as for CAR)
It covers cost of removal of debris of insured property damaged due to insured perils. This cost
is payable if claim for property damage is otherwise payable. It is to be covered against separate
sum insured.
For this cover, the rate applicable is 100% of the basic CAR rate (i.e. same rate).
ESCALATION (Same as for CAR)
It increase the sum insured by the percentage of escalation chosen. For ascertaining
underinsurance after a loss, the actual value of the complete project is compared with the sum
insured with escalation amount.
The premium for escalation is calculated by applying the basic CAR rate on 50% of escalation
amount.
EXCESS:
In EAR policy, there is separate excess for the following:
Storage and erection claims (called normal excess)
Testing period (called testing period excess)
Maintenance period claims (as testing period excess)
Act of God Claims
Fire/explosion Claims
AOG (Act of God perils) perils include Earthquake (Fire & Shock), Landslide, Rock-slide,
Subsidence, Storm, Flood, Inundation,
Example: Excess for
Storage and erection claims - 5% of claim amount subject to minimum
Rs. 10,000
Testing period claims - 5% of claim amount subject to minimum Rs. 30,000
AOG Claims - 10% of claim amount subject to minimum Testing period with
upper limit of Rs 5 crore)
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For AOG (Act of God perils) claims, Remember 7 consecutive days. For purpose of excess, an
AOG incident(e.g. flood) is not terminated until there have been 7 consecutive days from the
peril concerned.
EXAMPLE:
First incident of flood in an area on: 16th August 2015
Till 7 consecutive days from 16th August, all flood incidents will be considered as single event.
All flood incidents from 16th August to 23rd August 2015 will be a single flood event. Hence
single excess will be applicable.
Two types of Excess:
Minimum compulsory excess
Voluntary (Higher) excess (Same as for CAR)
.025
0.30
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: 2.00 %o
: 0.50 %o (.05 X 10 months)
: 0.075 %o (.025 X 3 months)
: 0.30 %o (.30 X 1 months)
: 2.875 %o (2.00 + 0.50 + 0.075 + 0.30)
000000000000000000000000000000000000000000000
HIGH VALUE PROJECTS
The CAR policy wordings are standardized. But high value projects like, projects with value being more
than Rs. 2500 crores, these are exempted from using standard wordings. The insurers may make
reference to the reinsurers for special rates, terms, conditions, etc.
POLICY CONDITIONS
Some of the policy conditions are as follows:
Notification of any material change in the risk to be immediately given to the insured
and and payment of additional premium to be made if required by the insurer.
Notice of claim to be given within 14 days of the loss.
Insurers rights of recovery (under subrogation) must be preserved by the insured.
Contribution will be applicable, if the loss is covered under more than one policy by
different insurers.
The differences regarding amount/quantum of claim are to be submitted to arbitration
(provide the claim is otherwise payable).
If the claim is found to be fraudulent, all benefits under the policy are forfeited.
Basis of Indemnification:
The loss may be of the following types:
Partial loss (repair of damaged item can be done)
Total loss
Total Loss may be of following types:
Repair cannot be done
Item stolen/misplaced
Constructive total loss or CTL
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Constructive total Loss (CTL): This is a loss in which the damaged item can be repaired
but the cost of repairs exceeds replacement value of property immediately before the
date of loss. For example, if the value of the damaged item is Rs. 2,00,000 and its repair
cost is Rs. 2,11,000, the insurer treats it as total loss though the item is repairable. Such
loss is called Constructive Total Loss or CTL.
Partial loss: If the damaged item can be repaired, the cost of repairs is paid.
Total loss: In case of total loss, the insurer pays the actual replacement value of the item
immediately before the date of loss.
Reinstatement premium of Rs. Rs. 1800 is to be paid by the insured for reinstatement of the S.I. to
original value of Rs. 4,00,00,000.
-----------------------------------------------------------------------------------------------------------------------------Prof. Anupam Suri (9810624914)
Fellow & Double Associate in Insurance (India); CPCU, AINS, HISC & TTT (U.S.A.); IF1 (U.K.)
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