Construction and Erection All Risks Insurance

Construction combines many risks: staff errors, damage to machinery, fire, flooding, collapse, natural events and liability to third parties. One serious incident can halt a project and require additional expenditure, so it is worth designing a CAR/EAR contract together with the work schedule and the contractual structure.

What CAR and EAR are

In practice, cover may combine construction and erection works in a single contract. The name of the product does not automatically determine the protection: what matters is the specific sections, exclusions and appendices.

Who needs a CAR/EAR contract

• the customer and investor — to protect their investment and the facility under construction;
• the general contractor — to meet a contractual requirement and limit unforeseen costs;
• subcontractors — if their works and liability are included in the overall programme;
• the bank or lender — as a party interested in the safety of the financed project;
• equipment suppliers — during erection and testing within the agreed cover.

Several participants may act as policyholders or insureds. They need to be listed so that no dispute over a party's status arises after an event.

What can be insured

• construction and erection works at the contract value;
• materials and structures on site;
• process equipment being installed;
• temporary buildings, structures and utility networks;
• construction machinery and plant — if included as a separate section;
• the customer's existing property near the work zone;
• liability for harm to the life, health or property of third parties;
• costs of clearing the site after a covered event;
• additional costs expressly provided for in the contract.

Which events are usually considered

A CAR/EAR contract is often built on the principle of covering sudden physical damage, unless the event is excluded. Depending on the project, the following may be considered:

Each event must match the definitions in the contract. The wording "all risks" does not mean there are no exclusions.

What is often excluded

• intentional acts and known defects;
• ordinary wear and tear, corrosion and gradual deterioration;
• fines, penalties and contractual sanctions as a loss in their own right;
• delay in completion and loss of income without special cover;
• design error to the extent excluded by the terms of the contract;
• defective materials or workmanship — especially the cost of correcting the defective element itself;
• war, nuclear and some political risks;
• interruption of works beyond the agreed period without notification;
• property outside the specified territory;
• events before the start or after the end of the insurance period.

Liability to third parties

A separate section may cover liability for accidental harm to neighbouring properties, visitors, passers-by and other third parties. You need to set the limit per event and for the whole period, the territory and the deductible.

The contractor's employees are usually not treated as ordinary third parties under this section. Their protection is governed by labour legislation, compulsory employee insurance and other contracts.

Construction period and warranty (maintenance) cover

Cover usually begins at an agreed moment: the start of works, the unloading of materials or another date under the contract. It ends on handover, commissioning, the start of use or a specified date, depending on the terms.

A warranty period may be included as an extension. In one variant, damage caused by the contractor while performing warranty works is covered; in an extended variant, events whose causes arose during the construction period may be considered. The wording must be read literally.

Downtime and suspension of works

A lengthy stoppage increases the risks of theft, flooding, corrosion and damage to unfinished structures. The contract may set a maximum period of downtime, after which protection is limited or the insurer's consent is required.

If works are suspended, notify the insurer and describe the conservation measures, security, drainage and site monitoring. Silence may complicate the settlement of a claim.

How to determine the sum insured

For the works, the full contract value is often used, including materials, erection, wages, transport and other elements provided for by the rules. Additional property and liability have separate limits.

If the cost of the project has increased, the contract needs to be amended in good time. An insufficient sum insured may lead to a proportional reduction of the payment, where such a condition is provided for.

What the policy cost depends on

• the type, purpose and value of the facility;
• the timing and stages of construction;
• geology, seismicity, climate and neighbouring buildings;
• the contractor's experience and loss history;
• the technologies used, the depth of the excavation and the height of the structure;
• the presence of hot work, testing and complex erection;
• the scope of cover, limits and deductibles;
• safety measures and the quality of the design documentation;
• the warranty period and additional extensions.

The rate is calculated individually after underwriting. It is not sound to assess a price without the project, the cost estimate and the schedule.

Documents for the calculation

• a questionnaire and information on the project participants;
• the contract, cost estimate and calendar schedule;
• design and technical documentation;
• a description of the site, the soils and neighbouring facilities;
• a list of works, equipment and subcontractors;
• the construction organization plan and safety measures;
• the history of similar projects and losses;
• the desired limits, deductibles and extensions.

What to do in case of damage

1. Stop hazardous works and ensure people's safety.
2. Limit further damage through reasonable emergency measures.
3. Notify the insurer within the prescribed period.
4. Record the scene: photographs, video, work logs, reports and statements.
5. Keep the damaged elements until inspection, if it is safe to do so.
6. Agree the reinstatement and keep separate records of costs.

Do not admit liability or enter into an agreement with a third party without taking the terms of the contract into account. Emergency measures to protect life and prevent greater harm are taken immediately.

Legal regulation

CAR/EAR insurance is voluntary, but that does not mean it is unregulated. The contract is governed by the legislation of the Republic of Kazakhstan on insurance, civil law and the insurance company's approved rules. Individual terms must not contradict mandatory provisions.

Insurance services are provided only by a licensed insurance company. Polis Re can help with risk analysis and comparing offers, but the insurer is the organization named in the policy.

How CAR/EAR differs from advance payment security

A CAR/EAR contract covers physical damage and the liability provided for. Advance payment security relates to the supplier's non-performance of obligations and the return of the advance. A large project may require both instruments.

This material is for information purposes only. The final cover is determined by the policy and the rules of the chosen insurance company.