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. Contractor’s 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. Contractor’s 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 Fabricator’s Premises/ Workshop

• Construction, plant & machinery

• Cross liability

• Third party liability

• Maintenance visits cover and Extended Maintenance

• Owner’s surrounding property

• Terrorism

Key Advantages of the policy

-The Contractor’s 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 Contractor’s 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 owner-

controlled 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). Contractor’s 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.

D 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.