Construction sites are susceptible to damage and losses arising from accidents, theft, natural disasters or other calamities. The damage may occur to machinery, buildings or result in injury or death of workers. Contractor’s All Risk insurance provides coverage against financial losses that arise from such untoward incidents. Contractor’s All Risk policy acts as a risk management tool in civil engineering and construction projects.
Contractor’s All Risk insurance policy facilitates reduction in overall construction expenses by acting as a cushion for financial liabilities that arise from mishaps at construction sites. In the absence of Contractor’s All Risk policy, such expenses would have added to the project cost. Additionally, Contractor’s All Risk insurance offers protection for parties involved as per the policy inclusions.
Who Needs Contractor’s All Risk Policy?
Some of the major accidents in construction projects involve falls from heights, electrocution, fire, and machinery damage. Since all establishments or businesses involved in the construction industry or in civil engineering projects are susceptible to these risks, Contractor’s All Risk insurance policy is essential. Some of the common stakeholders that require Contractor’s All Risk insurance are:
- Contractors
- Building owners or purchasers (Principals)
- Sub contractors (or other parties employed to carry out work)
- Any companies financing the given project
Contractor’s All Risk insurance is usually in the name of either the contractor or the principal of a project. However, as per terms of agreement between the aforesaid parties, it is often mandatory to include both the contractor and the principal as the insured party, before the project commences.
Contractor’s All Risk insurance policy has been designed to protect contractors and principals from financial losses during a construction project. The primary sectors that are commonly involved in construction include:
- 1. Government agencies
For public infrastructure such as roads, tunnels, buildings, etc.
- 2. Architectural and engineering companies
For their core business of design and construction
- 3. Real estate companies
For their core business of constructing buildings.
- 4. Hospitality and travel industry
For building and expansion of hotels, airports
- 5. Private companies
To which building and construction contracts have been leased out, such as metro construction.
Case Study: LM Builders, a renowned construction company, has its presence pan India. They specialise in constructing high-rise buildings in populated cities. They have ongoing projects in various 2-tier and 3-tier cities across the country. They have opted for Contractor’s All Risk policy for all their projects, right from the commencement stage.
Since the projects are insured, in addition to offsetting any financial losses due to untoward incidents, Contractor’s All Risk policy also allows the company to deliver their projects within timeline. Any setbacks from mishaps can be recovered and LM Builders can continue with smooth delivery of their projects.
Inclusions in Contractor’s All Risk insurance
The inclusions in Contractor’s All Risk policy are two-fold; and are categorised as material damage and third party liability. Coverage for material damage includes any loss, damage or destruction due to reasons included in the policy guidelines. With Contractor’s All Risk insurance, payment is made in lieu of the loss up to an amount as specified for the individual item or a total not exceeding the sum insured.
Third party liability includes legal liability due to accident or damage to property of a third party. It also includes legal liability in case of fatal or non-fatal injuries to workers other than the insured party’s own workers or employees.
There are certain conditions or situations that are considered as ‘perils’ in the Contractors All Risk policy. Perils in the light of the policy coverage are those situations due to which an accident or mishap occurs at a construction site or during a civil engineering project.
The following are some of the perils outlined in the Contractor’s All Risk insurance:
- Fire, Lightning and allied perils
- Theft, pilferage or related locational risks
- Commissioning risks involving electricity leaks, short circuits, failure of safety devices, explosions etc.
- Human errors due to negligence, riots, acts of terrorism, faults in erection or construction, malicious damage
- Handling risks due to fall or impact of collision, faulty cranes, etc.
- Natural disasters such as storms, tempest, hurricanes, floods, earthquakes, etc.
Exclusions in Contractor’s All Risk insurance
- Damage due to normal wear and tear, obsolescence, etc.
- War, nuclear attacks or allied perils
- Commissioning risks involving electricity leaks, short circuits, failure of safety devices, explosions etc.
- Damage or loss when work has been ceased
- Loss identified only during time of stock taking
- Wilful damage or destruction by insured or his/her representatives
- Loss or damage due to faulty design or reasons other than fault while erecting
In Contractor’s All Risk policy, the sum insured is primarily determined based on the nature and tenure of the project. The coverage starts right from the time of project commencement up till the time the project has been completed and delivered to the owner.
Conclusion
Since construction sites are more susceptible to physical damage and accidents, Contractor’s All Risk policy is beneficial for all the stakeholders. Any losses or damage to property due to human errors or negligence, theft, or damages arising from natural calamities can be reduced with Contractor’s All Risk insurance policy.
Contractor’s All Risk policy helps big-budget construction projects to plan, commission and execute the operations within timelines and financial resources. Contractor’s All Risk insurance is equally useful for small-scale civil engineering works that involve machinery and contract workers. Opt for ICICI Lombard’s Contractor’s All Risk policy for better risk understanding and management, and effective underwriting and claim processing.