Construction All Risks (“CAR”)
This type of policy covers the civil works from commencement of construction to final handover (including testing/commissioning and extended maintenance – normally 12 months). The policy also normally includes a section covering claims arising from third parties (Third Party Liability) who are injured, or whose property is damaged, during the construction period.
It is recommended that this policy be procured by the principal (i.e. the project owner), making it an ‘owner-controlled’ insurance policy, as opposed to a contractor-controlled policy. There are a number of reasons for this, including the following:
• Contractors commonly include the cost of insurance in their contract price. When asked for a breakdown of the contract, it is often discovered that the owner can buy the insurance at a lower cost.
• The owner can maintain control over the extent of coverage - ensuring all necessary perils are included and the policy remains valid at all times.
• The owner retains control of the policy at the critical time of transition from the construction to the operational phase to ensure there is no gap in coverage.
• It avoids 'finger-pointing' when a loss occurs and contractors or sub-contractors blame each other for the loss, often resulting in a delayed response from insurers.
• Contractors and sub-contractors are named as “additional insureds” under the policy, so that all claims by third parties arising from the construction are covered, regardless of who is to blame.
Machinery Breakdown and Business Interruption following Machinery Breakdown
This policy covers mechanical and electrical breakdown of plant and machinery, and the ensuing loss of production (cover which is often excluded from Fire and Property All Risks policies). Policies can also cover loss to surrounding property damaged by breakdown, such as in the case of explosion of boiler machinery. The cover is important for critical items of plant where limited back-up or standby facilities exist or where sophisticated and expensive equipment is in place. Companies should consider maintaining adequate back-ups, and holding spares of critical components.
The policy covers losses resulting from sudden and unexpected physical loss or damage to electronic equipment (e.g. computers) by any cause (other than the exclusions specified in the policy), in a manner necessitating repair or replacement. The policy can often also be extended to cover expenses incurred in reconstruction of data, and the cost to rent substitute equipment.
Erection All Risks (“EAR”)
This type of policy insures equipment during installation and testing/commissioning, up to the point where the equipment is operational (when it then is transferred to the Fire, Property All Risks, and/or Machinery Breakdown insurance policy). This policy also contains coverage for an extended maintenance period (typically 12 months) and includes a section for Third Party Liability.
Arguments for owner-controlled policy (as under Construction All Risks) similarly apply to this policy.
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