contractors all risks insurance (CAR)
Contractors all risk insurance is used to cover damage to a project under construction on projects outside the United States. Contractors all risk is a nonstandard coverage that combines coverage for damage to the project and third-party liability arising out of the project into a single policy. Covered parties include the project owner, general contractor, subcontractors, and in some cases suppliers of materials and equipment. In rare instances, the design professional may also be an insured.
Understanding Contractors All Risks Insurance
Contractors All Risks (CAR) insurance is designed to shield against the myriad of risks associated with construction activities. This type of insurance is particularly relevant for projects located outside the United States, where standard policies may not provide adequate coverage or align with local regulatory requirements.
The construction industry faces unique challenges and risks, from accidental damage to the project to third-party claims for injury or property damage. CAR insurance plays a pivotal role in mitigating these risks. It not only protects the financial investment in the project but also safeguards the interests of all parties involved, including owners, contractors, and subcontractors.
By covering a wide range of risks under a single policy, CAR insurance simplifies the management of insurance coverage, making it easier for project stakeholders to understand their protections and respond efficiently to incidents. The consolidation of various risks into one policy also potentially offers cost savings compared to purchasing separate policies for different types of coverage.
Coverage Parts of Contractors All Risks Insurance
CAR insurance coverage is divided into three main parts, each designed to address specific areas of risk that are intrinsic to construction activities.
Part I: Damage to the Project
Part I of CAR insurance is analogous to builders risk policies found in the United States. It provides comprehensive coverage for physical damage to the construction project itself. This includes the structure under construction and also extends to materials and equipment destined for incorporation into the project. Coverage is broad, encompassing items stored on-site, in transit, or temporarily housed at other locations, ensuring that the project is protected against loss from a wide range of risks, including fire, theft, vandalism, and natural disasters.
Part II: Liability Insurance
The liability component of CAR insurance, Part II, addresses the legal liabilities that may arise during construction operations. It covers third-party bodily injury (BI) and property damage (PD) claims, which are critical concerns on any construction site. This part ensures that, in the event of an accident causing injury to a third party or damage to third-party property, the policyholder is protected against potentially crippling financial liabilities.
Part III: Delay in Start-up (DSU) Coverage
Part III, an optional but highly recommended coverage, protects against financial losses resulting from delays in the project's completion. Known as Delay in Start-up (DSU) coverage, it compensates for lost income and additional expenses that occur when an insured loss leads to a delay in the project's opening or operational start. This coverage is akin to delayed opening or soft costs coverage found in builders risk policies in the United States, offering a safety net for projects facing unexpected setbacks.
IRMI's Construction Risk Management offers detailed guidance on insurance coverage, risk allocation, statutory changes, and judicial rulings to effectively manage contractor liabilities and coverage strategies.
Eligible Parties for Contractors All Risks Insurance
CAR insurance addresses a wide range of participants involved in a construction project, from those overseeing the project to those supplying materials.
The project owner, the individual or entity commissioning the construction work, is a primary beneficiary of CAR insurance. This coverage protects their investment in the project, ensuring that unforeseen events do not lead to significant financial loss.
General contractors manage the construction project on a day-to-day basis, making them susceptible to various risks. CAR insurance provides them with protection against damage to the project, as well as liability for third-party injuries or property damage.
Subcontractors, who are hired by the general contractor to perform specific tasks, are also covered under CAR insurance. This ensures that the specialized work they contribute to the project is protected against unforeseen incidents.
Suppliers who provide materials and equipment essential for the construction project can be covered by CAR insurance. This includes coverage for materials in transit, on-site, or stored off-site, safeguarding against losses that could impact project time lines and budgets.
In some cases, design professionals such as architects and engineers may also be included as insured parties under a CAR policy. This is less common and typically depends on the project's requirements and the insurance provider's stipulations.
Comparison with US Builders Risk Policies
While both contractors all risks insurance and builders risk insurance serve to mitigate risks associated with construction projects, there are key differences in coverage scope, eligibility, and application.
At their core, both CAR insurance and US builders risk policies are designed to cover damages to the project under construction. However, CAR insurance is more comprehensive, often incorporating liability coverage for third-party bodily injury and property damage, which is typically not included in standard builders risk policies. US contractors need to purchase general liability insurance separately. CAR insurance provides a critical layer of financial protection against third-party claims that could arise from construction activities, sparing companies the need to purchase separate liability insurance.
Another significant difference lies in the geographical scope and adaptability. CAR insurance is tailored for projects outside the United States, taking into account the unique legal and regulatory environments of different countries. This international orientation ensures that the coverage meets the specific needs of global construction projects.
FAQs
Q: What is contractors all risks insurance?
A: CAR insurance is a comprehensive policy designed to cover various risks associated with construction projects, including damage to the project, third-party liability, and optional coverage for delays in start-up.
Q: Who needs CAR insurance?
A: This type of insurance is essential for parties involved in construction projects outside the United States, including project owners, general contractors, subcontractors, suppliers of materials and equipment, and occasionally, design professionals.
Q: How does CAR insurance differ from builders risk insurance in the United States?
A: While both types of insurance cover project damages, Contractors All Risks Insurance also includes third-party liability coverage and can offer optional delay in start-up coverage, making it more comprehensive than traditional builders risk policies in the United States.
Q: What does Part I of CAR insurance cover?
A: Part I covers physical damage to the construction project itself, including materials and equipment destined for incorporation into the project, whether in transit, on-site, or stored elsewhere.
Q: What is covered under Part II of CAR isurance?
A: Part II provides liability insurance for third-party bodily injury and property damage claims arising from construction operations.
Q: Is delay in start-up coverage important?
A: Yes, delay in start-up (DSU) coverage is crucial as it protects against financial losses resulting from delays in the project's completion, covering lost income and additional expenses incurred due to insured losses.
Q: Can suppliers be covered under CAR insurance?
A: Yes, suppliers of materials and equipment necessary for the construction project can be covered, ensuring protection for materials in transit, on-site, or stored off-site.
