Erection All Risks Insurance Policy

Properties Needing the coverage:

All Machinery and materials involved in setting up a new project or
expansion/ diversification of an existing project comprising.
To whom the policy is intended:
The main Organizations/Individuals who require EAR insurance
protection are:
Principals/Project Owners
Contractors including Turnkey Contractors, Sub-Contractors
Manufacturers/Suppliers of Project items
Financial Institutions, Management Agencies etc.

This policy is unique in the sense that the interest of the principal,
contractor and the sub contractors as also the financial Institutions if
any, can be covered under one single insurance policy.
What are the Risks covered under the Policy:
The policy is divided into two main sections:
Section 1 Material Damage.
Section 2 Third Party Liability.
Section 1 is compulsory. However Section 2 is optional.

Section 1 Material Damage:

The policy covers any sudden and unforeseen physical loss of or
damage to the property insured, which include:
Location Risks Fire, Explosion/ Implosion, Theft, Burglary, Aircraft
Damage.
Handling Risks Impact from falling objects, collision, failure of cranes,
tackles and similar accidents.
Operational Risks failure of safety devices, leakage of electricity,
insulation failures, short-circuit, excessive pressure or vacuum, tearing
apart of account of centrifugal forces, electrical/mechanical failure also
during testing & commissioning.
Risks of Human element carelessness, negligence, lack of skill, faults in
erection, malicious damage, sabotage, riot, strike.
Act of God Earthquake, storm, tempest, hurricane, flood, Lightning,
etc.

Section 2 Third Party Liability:

This section covers legal liability of the Insured against:
Injury to / death of third party.
Loss of / damage to any property belonging to third party.

What are the major exclusions to the coverage:

General Exclusions (applicable for both the sections):
War & Allied Perils.
Nuclear & Allied Perils.
Wilful act or wilful negligence of Insured/ his representatives.
Cessation of work.
Special Exclusions applicable for Section 1:
Excess in respect of each claim as stated in the policy
Losses discovered only at the time of taking an inventory
Normal wear and tear, gradual deterioration, lack of use, obsolescence,
rust, etc.
Loss/damage due to faulty design, defective material or casting other
than faults in erection.
Cost of replacement, repair or rectification of any error during erection
unless resulting in physical loss/damage.
Loss/ damage to files, drawing, accounts, bills, currency, stamps,
deeds, packing materials, etc.
Any damages/penalties on account of the Insured of the terms of
delivery/completion under his contract of construction.
Consequential loss/liability of any kind.

Special Exclusions applicable to Section 2:

Excess stated in the policy.
Expenses covered under Section 1 of this policy.
Liability towards employees, workmen of the contractors/principal or
any firm connected to the project.
Loss/damage of property belonging to or held in custody of contractor,
principal or any other firm connected to the project.
Any accident caused by vehicle licensed for road use/waterborne
vessels or aircraft.
Any agreement by the Insured to pay any sum unless such liability
would attach also in absence of such agreement.

What is the Period of Insurance for which the policy should be

taken?
The period of insurance should, in case of a new project, coincide with
the period during which the whole project will be erected tested and
commissioned.
The minimum period for which the policy can be issued is two months
comprising of one month erection and one month testing.
What are the significant extensions that are possible to be
obtained under the policy?
The policy cover can be extended to cover the following on payment of
additional premium:
1. Surrounding Property of the Insured.
2. Earthquake (Fire & Shock) Perils.
3. Storage at Fabricators Premises/Workshop .
4. Clearance & Removal of Debris.
5. Escalation in the cost of project machinery and materials during the
period of erection.
6. Additional Express Freight, Holiday and Overtime Rates of the
Wages.
7. Air Freight.
8. Additional Custom Duty payable in connection with any replacement
for damages to certain machinery/equipment due to insured perils,
over and above the project duty originally insured.
9. Construction Machinery Plants and Equipments used in Projects.
10. Maintenance Visits and Extended Maintenance Cover.
11. Terrorism Cover.
12. Civil Works connected with the erection of the project.

What is the Sum Insured for which the policy should be taken:
In case of Projects the sum insured should represent the estimated
completed cost of the whole project. The sum should therefore include
FOB/CIF value of the project machinery/materials.
Freight and incidentals including insurance charges.
Customs Duty/Excise Duty/Octroi as may be applicable.
Cost of Erection
Permanent Civil Engineering Work.

How the premium is charged for the policy:

Basic rate is provided for a minimum period of one month erection plus
one month testing cover and additional rates are stipulated for
subsequent months of erection and testing. The excess in respect of
claims arising during erection and testing periods are taken separately
and there is separate excess for claims arising out of Act of God perils.
Full premium should be paid at the time of taking the policy if the
period of insurance shall be equivalent to or less than twelve months.
For policies issued for periods beyond twelve months premium can be
paid by instalments subject to the following conditions:
Policy period should be more than twelve months.
First installment should be higher by 5% of the total premium due
under the policy than the rest of the installments.
Last installment should be collected 6 months before the expiry of the
policy.

Underwriting Requirements:
For Quote Mode & Format incl. Documentation. Agent Needs to
provide following information before asking for quote from the
underwriter.
1. Name of the Proposer.
2. Address of the Proposer.
3. Period of Insurance:
i. Expected date of first arrival of consignment.
ii. Probable date of completion of Erection of P&M.
iii. Contract period in months:
a. Erection
b. Testing
4. Description of properties to be erected.
i. Industry
ii. Make and details of the machines to be erected.
iii. Sum insured for imported machinery:
a. Invoice
b. Freight
c. Custom Duty
iv. Sum Insured for indigenious machinery:
a. Invoice
b. Freight
v. Cost of Erection
vi. Civil Engineering Works:
a. Permanent
b. Temporary
5. Extensions required:
i. Clearance & Removal of Debris.
ii. Owners surrounding property.
iii. Contractors Plant & Machinery.
iv. Express Freight , overtime and holiday rates of wages.
v. Air Freight
vi. Additional Custom Duty.
vii. Third Party Liability:
AOA
AOY
viii. Escalation:
Imported
Indegenous & civil works.
Project cost
ix. Storage at fabricators premises.
x. Dismantling cover
xi. Earthquake
xii. Cross liability
xiii. Maintenance visit cover.
xiv. Extended Maintenance visit cover. xv Terrorism cover
6. Higher Voluntary Excess:
i. Earthquake:
2 Times
5 Times
10 Times
 20 Times
ii. Others:
2 Times
5 Times
10 Times
20 Times
7. Claims Experience Discount for sum insured upto Rs.100 crores.
8. Installment facility required (if yes , no of installments).
 For Policy Documentation:

Proposal Form duly filled in , signed ( Stamped for other than

individual).
Copy of the premium quote.
Premium cheque

Rating:
1. Rate as per benchmarking rates / Tariffs / As per the underwriting
practices of an insurance company based on risk perceptions (one
month + one month testing).
2. Per month rate for next 10 months * multiplier.
3. Per month rate for period exceeding 10 month * multiplier.
4. Extra premium for testing period in excess of one month.
5. Basic SCE/EAR Rate.
6. Earthquake Rate as per zones (only for zone I & II).
7. Total applicable rate (Policy Rate).
8. Basic premium = completely erected value * applicable rate.
9. Extensions:
a. Clearance and Removal of Debris - Policy Rate.
b. Surrounding property - 50% of policy rate.
c. Contractors plant and machinery - Policy Rate.
d. Express rate / overtime - Basic SCE Rate.
e. Escalation - 50% of policy rate.
f. Air Freight - 5%
g. Custom Duty - 2%
h. Third Party Premium - Policy Rate.
i. Cross liability cover - 50% of TP premium.
j. Storage at fabricators premium - 0.3‰ per month.
k. Dismantling cover - 60% of SCE Rate (Excluding Testing and EQ cover).
I. Maintenance Cover:
i. For 6 months - 0.25‰
ii. For 12 months - 0.50‰
iii. Exceeding 1 year - 1.00‰ per annum.
k. Extended Maintenance Cover:
i. For 6 months - 0.50‰
ii. For 12 months - 1.00‰
iii. Exceeding 1 year - 1.00‰ per annum.
n. Terrorism:

i. For 6 months - 0.25‰

ii. For 12 months - 0.50‰
iii. Exceeding 1 year - 0.50‰ prorata per annum.
Case Study-
Quote No. 123 Name of the Insured: ABC Ltd. Policy Tenure -> 28
Months From: 5-Jul-01 To: 4-Oct-03
Including Testing Period of -> 4 Months Description of Project :
Erection of Cardboard manufacturing Cement Factories
(All Amount in Rs.)
Sr. Description Sum Insured Rate ‰ Premium
No
.
1 Basic Premium
Imported Machineries 1,060,000 4.80 5,088.00
Indegnious Machineries 775,000 4.80 3,720.00
Cost of Erection 350,000 4.80 1,680.00
Civil Engg. Works 100,000 4.80 480.00
Completely Errected
2,285,000 4.80 10,968.00
Value
Extensions:
Clearence & removal of
1 100,000 4.80 480.00
Debris
2 Surrounding Property 300,000 2.40 720.00
Contractor's Plant &
3 91,400 4.80 438.72
Machinery
Express
4 5,000 4.30 21.50
Freight/Overtime, etc.
5 Escalation Imported M/c 265,000 2.40 636.00
Escalation Indigenious
271,250 2.40 651.00
M/c
Escalation Cost of
35,000 2.40 84.00
Erection
6 Air Freight 15,000 5.00 750.00
7 Custom Duty 20,000 2.00 400.00
Third Party Premium
8 2,500,000 4.80 12,000.00
(AOY limit)
9 Cross Liability Cover
(50% of TP Liability
Premium) 12,000 50.00 6,000.00
10 Storage at Fabricators 1,835,000 7.20 13,212.00
Premises (Rate 0.3 ‰
per month for 24
months)
11 Dismantiling Cover
(60% of total SCE Rate 1,835,000 2.04 3,743.40
excl. Testing &
Earthquake Extras)
12 Maintenance Visits Cover - - -
13 Extended Maint. Cover 2,285,000 0.50 1,142.50
Tot
51,247.12
al
Les Discount for Voluntary
2,562.36
s: Excess
Gross Premium 48,684.76
Net Premium 48,685.00
Add: Terrorism Premium 5,011.00
Net Premium after Terrorism
53,696.00
Premium
Add: Service Tax @ 10.3% 5530.00
Total Premium Payable 59,226.00
Name of Policy: Contractors All Risk Insurance Policy

Description:
This policy may be issued for projects where the Civil Works involved is
more than 50% of the total contract value. This policy is unique in the
sense that the interest of the principal, contractor as well as the
interest of the sub-contractors can be covered under one single
insurance policy.
Risk Cover:
The policy is divided into two main sections: Section 1 - Material
Damage and Section 2 - Third Party Liability. Section 1 is compulsory.
However, Section 2 is optional.
Section 1 Material Damage:
This policy is basically an unnamed peril policy i.e. a comprehensive all
risk type of policy and is subject to named exclusions. The policy
covers any sudden and unforeseen physical loss of or damage to the
property insured, some of the risks covered may be listed as below:
Location Risks Fire, Explosion/ Implosion, Theft, Burglary, Aircraft
Damage.
Handling Risks Impact from falling objects, collision, failure of cranes,
tackles and similar accidents.
Risks of Human element carelessness, negligence, lack of skill, faults in
erection, malicious damage, sabotage, riot, strike, terrorism.
Act of God Earthquake, storm, tempest, hurricane, flood, Lightning,
etc.

Section 2 Third Party Liability:

This section covers legal liability of the insured against
Injury to/death of third party.
Loss of /damage to any property belonging to third party.
All costs & expenses of litigation recovered by any claimant from the
insured.
All costs and expenses incurred with the written consent of the
insurers.

Exclusions:
The exclusions are divided into general and specific.
The general exclusions apply to all the sections whereas the specific
exclusions apply to loss/ damage to the specified section only. General
Exclusions applicable to all sections
War & Allied Perils.
Nuclear & Allied Perils.
Wilful act or wilful negligence of insured/ his representatives.
Cessation of work.

Exclusions Specifically for Section 1:

 1. Excess stated in the policy.
2. Losses discovered only at the time of taking an inventory.
3. Normal wear and tear, gradual deterioration, lack of use,
obsolescence, rust, etc.
4. Loss/damage due to faulty design.
5. Cost of replacement, repair or rectification of defective material
and/or workmanship.
6. Rectification/correction of any error during construction unless
resulting in physical loss.
7. Loss/damage to files, drawing, accounts, bills, currency, stamps,
deeds, packing materials, etc.
8. Any damages/penalties on account of the insured of the terms of
delivery/completion under his contract of construction.
9. Loss of or damage to vehicles licensed for general road use or water
borne vessels or machinery/equipment mounted or operated or fixed
on floating vessels or aircraft.
10. Consequential loss/liability of any kind.

Exclusion for Section 2:

Excess stated in the policy.
Expenses covered under Section 1 of this policy.
Liability towards employees, workmen of the contractors/principal or
any firm connected to the project.
Liability on account of loss/damage of property belonging to or held in
custody of contractor, principal or any other firm connected to the
project.
Any accident caused by vehicle licensed for road use/waterborne
vessels or aircraft.
Any agreement by the insured to pay any sum unless such liability
would attach also in absence of such agreement.

Special Condition:
Reinstatement of sum Insured : In the event of loss or damage, insured
will have to pay additional premium on pro-rata basis to maintain the
same level of sum insured.
Extensions/Add-ons:
The policy cover can be extended to cover the following on payment of
additional premium:
1. Surrounding Property of the Insured:
The loss or damage to surrounding property of the insured
occurring directly due to the construction of the items insured
under Section I during the period of cover can be covered under
this extension. It is to be noted that cracks that neither impair
the stability of the structure nor safety of its users are not
covered.
2. Earthquake (Fire & Shock) Perils:
 Earthquake is not covered under the policy, however can be
covered by payment of
additional premium. It is to be noted that there is no additional
premium if the location of site is in the Zone III & IV as defined in
the esrswhile Fire Tariff.
3. Storage at Fabricators Premises/Workshop:
The insured can opt to cover storage of
equipment/materials/machinery at Fabricators
Premises/Workshop by payment of additional premium as per
the erstwhile tariff provisions.
4. Clearance & Removal of Debris:
The insured can opt to cover the expenses incurred for clearance
and removal of debris in consequence of an indemnifiable loss
under the main policy.
5. Escalation Provision:
The insured may opt for this extension when it is expected that
the cost of machinery and or construction is expected to
increase during the currency of the policy. There is a limit on the
escalation percent of upto 50% of the sum insured and can be
availed of by the insured only at the inception of the insurance
policy.
6. Additional Express Freight, Holiday and Overtime Rates of the
Wages:
Express freight (excluding air freight), holiday and overtime rates
of wages incurred in connection with the loss/ damage to the
insured item is recoverable under this extension.
7. Air Freight:
Air Freight incurred in connection with the indemnifiable loss
under the policy can be covered under this extension. Excess of
5% has to be borne by the insured.
8. Additional Custom Duty:
The insured may cover the Custom Duty amount, which he may
incur over and above the custom duty amount taken into
account in arriving at the sum insured of the affected item.
Excess of 5% has to be borne by the insured.

9. Construction Machinery Plants and Equipments used in

Projects:

The insured can cover the plant, machinery & equipments used
in the project provided the
sum insured does not exceed 5% of the Sum Insured under CAR
insurance by payment
of additional premium.
10. Maintenance Visits and Extended Maintenance Cover:
The insured may cover the maintenance visits and extended
maintenance by payment of
 additional premium. It is to be noted that this cover can be opted
at the inception of the
policy only.
Underwriting Requirements:
For Quote Mode & Format incl. Documentation Agent needs to provide
following information before asking for quote from the underwriter.
1. Name of the Proposer.
2. Address of the Proposer.
3. Period of Insurance (excluding maintenance period).
4. Location of the plant to be insured.
5. Maintenance period in months.
6. Description of the project / job.
7. Classification of the job.
8. Extensions:
a. Clearance & removal of Debris.
b. Surrounding property.
c. Contractors plant & machinery.
d. Express Freight/overtime etc.
e. Air Freight
f. Custom Duty
g. Third party Liability
h. Storage at Fabricators premises.
i. Maintenance Visit Cover. j Extended maintenance Cover.

For Policy Documentation:

1. Proposal Form duly filled in , signed (Stamped for other than
individual).
2. Copy of the premium quote.
3. Premium cheque
4. Premium receipt:
a. Amount equal to the amount mentioned in the premium quote.
b. Name same as the name appearing on the proposal form.
c. Cheque Details verified with the physical cheque.
d. Product Category verified with the proposal form.

Claims:
The Insured may carry out the repair or replacement of any minor
damage not exceeding Rs. 2,500/- after giving notice to the company.
In the case of damage which can be repaired, the cost of repairs
necessary to restore the property to their condition immediately before
the occurrence of the damage less salvage, or
In the case of a total loss, the actual value of the property immediately
before the occurrence of the loss less salvage;
The cost of any alterations, additions and/or improvements will not be
recoverable under this Policy.
Any extra charges incurred for overtime, work on holidays, express
freight (excluding airfreight) will be paid only if it is specifically
mentioned in the policy.
If the civil portion or structure has been handed over to the principal,
the same is outside the purview of the policy.
The surveyor should confirm specifically as to the damage is not due to
faulty design since the policy excludes loss due to faulty design.
The assessment of loss will require detailed investigation as to the
expense involved in respect of labour.
The excess applicable under the policy depend on the type of damage
and the same would be specified in the policy.
Case Study
Quote No. 123 Name of the Insured : ABC Ltd. Contract Period -> 5
Months Policy Tenure -> 5 Months From 13-May-02 To 12-Oct-02
Maintenance Period not covered Description of Project : Construction of
Factory sheds, Warehouses, Cold storages, Hangars - RCC construction
Rate (per mille) Computation Basic Rate 2.04 Loading for Breakage
of Glass Cover -Earthquake Cover (Zone III) Applicable Rate 2.04
(All Amount in Rs.)
Premiu
Description Sum Insured Rate ‰
m
Basic Premium - Contract Works
(Permanent & Temporary Incl. Materials)
Contract Price 4,000,000 2.04 8,160.00
Materials Supplied by
Principals - 2.04 -
Any Other Works &
Installations not included 2.04
before - -
Landed cost of Imported
items not included before - 2.04 -
4,000,000 8,160.00
Sr. Extensions:
Clearence & removal of
1 - - -
Debris
2 Surrounding Property - - -
Contractor's Plant &
3 - - -
Machinery
Express Freight/Overtime,
4 - - -
etc.
Escalation / Increased
5 - - -
Replacement Value
6 Air Freight - - -
7 Custom Duty - - -
Third Party Premium (AOY
8 - - -
limit)
AOA Limit - Rs.
Storage at Fabricators
9 Premises (Rate 0.3 ‰ per - -
month)
10 Maintenance Visits Cover - - -
Extended Maintenance
11 Cover - - -
Total 8,160.00
12 Loss: Discount for Voluntary Excess at -
13 Gross:Premium 8,160.00
14 Add: Terrorism Premium 2,000.00
 Total Premium after
10,160.00
Terrorism Premium
Add : Service Tax @
15 1,046.00
10.3%
Total Premium Payable 11,206.00