Erection All Risk Insurance Coverage Guide

When it comes to construction and engineering projects, unforeseen damages or accidents can result in significant financial losses. Erection All Risk Insurance is designed to provide comprehensive coverage for such eventualities. This type of insurance primarily protects contractors, project owners and equipment suppliers against risks that may occur during the installation, erection or commissioning of machinery and structures.

Understanding the inclusions and exclusions of this insurance is crucial before opting for a policy.

What are the inclusions and exclusions under erection all risk insurance?

To make an informed decision, it is important to know what Erection All Risk Insurance typically covers and what it does not. The following sections outline an indicative list:

1.      Inclusions

Key inclusions usually include:

• Material and equipment damage: The policy covers physical damage to machinery, plant and materials caused by accidents such as fire, explosion or natural disasters. For instance, if a crane collapses or a generator gets damaged during installation, the loss can be covered.
• Third-party liability: If the project activities cause accidental injury or damage to third-party property, this coverage can protect the insured against legal liabilities and compensation costs.
• Transit coverage: Equipment or materials transported to the project site are often covered against damage or loss during transit, including loading and unloading operations.
• Testing and commissioning risks: Losses occurring during the testing phase of machinery or systems before they become operational may also be included.
• Erection errors: Some policies extend coverage to accidental damage arising from unintentional errors during installation.

Note: This is an indicative list. Please read the policy wordings for the complete list of inclusions.

2. Exclusions

While Erection All Risk Insurance offers broad coverage, certain events are typically excluded. Understanding these exclusions is essential to avoid surprises during claim settlement.

Common exclusions include:

• Wear and tear: Damage caused due to normal usage, ageing or gradual deterioration of machinery is not covered.
• Design and manufacturing defects: Faults inherent in the design or construction of equipment are usually excluded.
• Wilful acts or negligence: Losses resulting from intentional damage or gross negligence by the insured or contractor are not covered.
• War, terrorism and nuclear risks: Damages arising from war, acts of terrorism or nuclear incidents are generally excluded.
• Environmental hazards: Damage caused by pollution or contamination may not be included unless specifically stated in the policy.

Note: This is an indicative list. Please read the policy wordings for the complete list of exclusions.

Who needs an Erection All Risk policy?

Erection All Risk Insurance is particularly beneficial for:

• Contractors and construction companies: To safeguard against financial losses during the installation of machinery and equipment.
• Project owners: To protect their investment in large-scale projects such as factories, power plants or infrastructure.
• Suppliers and manufacturers: For equipment supplied to project sites, ensuring protection until the machinery is successfully installed and operational.

Essentially, any stakeholder involved in erecting or installing machinery or structures can benefit from this policy.

Erection all risk insurance is usually taken for which projects in India?

In India, Erection All Risk Insurance (EAR) is commonly availed of for projects that involve complex machinery, technical installations or large infrastructure development. Examples include:

• Power plants: Covering turbines, generators and auxiliary equipment.
• Industrial plants: Chemical, pharmaceutical and manufacturing facilities.
• Infrastructure projects: Bridges, airports and metro systems requiring heavy construction machinery.
• Oil and gas projects: Refineries, pipelines and storage facilities.

The policy ensures that these high-value assets are financially protected during critical installation phases.

Key policy terms and conditions to look for in EAR insurance

When selecting an Erection All Risk Insurance policy, it’s essential to review these key terms and conditions:

• Coverage period: Confirm the policy period aligns with the project’s installation and commissioning timeline.
• Sum insured: Ensure the declared value of machinery, equipment and materials reflects their replacement cost.
• Deductibles and excess: Check the financial responsibility you need to bear in case of a claim.
• Extensions: Optional add-ons, such as natural disaster coverage or testing risk coverage, should be considered.
• Claim procedure: Understand documentation and notification requirements to avoid delays in claim settlement.

Conclusion

Erection All Risk Insurance plays a crucial role in managing risks associated with machinery and project installations. By covering accidental damages, third-party liabilities and transit risks, it helps stakeholders safeguard their investments during critical construction and commissioning stages.

However, understanding exclusions, policy terms and conditions is essential for effective risk management. Always review the policy wording carefully before finalising coverage to ensure comprehensive protection tailored to your project needs.

FAQs

• Is erection all risk insurance mandatory for all construction projects?

It depends on the project requirements and contractual agreements. Some lenders or clients may require it, but it is not universally mandatory.

• Can the policy cover damages during machinery testing?

Many policies provide coverage for testing and commissioning risks, but the extent can vary. Check the policy wording for precise details.

• Does the insurance cover damages caused by natural disasters?

Coverage for natural disasters like earthquakes or floods may be included, but it depends on the insurer and the selected policy extensions.

• Can third-party liabilities be included in the policy?

Many Erection All Risk insurance policies include third-party liability coverage, though limits and conditions may vary.

• How long does the insurance coverage last?

The coverage period is usually tied to the project timeline and ends once installation and commissioning are complete. Exact durations depend on the policy terms.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.