Contractor All Risk (CAR) insurance policies serve as crucial financial safeguards for construction projects in India. These policies are designed to protect contractors, project owners, and other stakeholders from a wide range of risks that may arise during the construction process. However, like any insurance policy, a contractor all risk insurance policy also comes with certain exclusions that policyholders need to be aware of to ensure they have adequate coverage. In this blog, we will explore some of the common exclusions found in a typical contractor all risk policy in India.

Let’s proceed then..

Common Exclusions in Contractor All Risk Insurance Policies in India

Understanding the exclusions in these insurance policies is crucial for contractors and project owners to assess their risk exposure accurately and ensure they have appropriate coverage in place. By identifying potential gaps in coverage, stakeholders can protect their investments and mitigate financial losses in the event of unforeseen incidents during the construction process. Here are certain common exclusions found in a typical contractor all-risk policy in India-

  • Pre-existing Conditions

 CAR insurance typically does not cover damages resulting from pre-existing conditions of the site or the structure. This exclusion aims to ensure that contractors are not held liable for issues that were present before the commencement of the project. It is essential for contractors to thoroughly assess the site and disclose any existing conditions to the insurance provider before obtaining coverage.

  • Gradual Deterioration

Most contractors all risk insurance policies exclude coverage for damages caused by gradual deterioration or wear and tear over time. While the policy may cover sudden and accidental damages, issues arising from poor maintenance or aging infrastructure are typically not included. Contractors should implement proper maintenance protocols to mitigate the risk of gradual deterioration and ensure they are adequately covered for sudden incidents.

  • Employee Injuries

 While contractors are required to provide a safe working environment for their employees, a Contractors All Risk Policy usually excludes coverage for injuries sustained by workers during the construction process. Instead, contractors are expected to have separate workers' compensation insurance to cover employee injuries and occupational hazards. This division of coverage helps in managing risks effectively and ensuring that injured workers receive the necessary support and compensation.

  • Professional Liability

A contractor all risk policy in India is primarily focused on physical damages to the construction project rather than professional errors or omissions. Therefore, liabilities arising from design flaws, engineering errors, or inadequate project planning are typically excluded from CAR policies. Professionals involved in the construction process, such as architects and engineers, should obtain professional liability insurance to protect themselves against such risks.

  • Acts of Terrorism or War

 In the current global climate, insurance policies often exclude coverage for damages caused by acts of terrorism or war. While these events are relatively rare, they can have catastrophic consequences for construction projects. Contractors may need to explore additional coverage options or consider specialized terrorism insurance to protect against such risks, especially for projects located in sensitive or high-risk areas.

  • Environmental Pollution

 A Contractors All Risk Policy generally does not cover damages resulting from environmental pollution or contamination. Construction activities can pose risks to the surrounding environment, including soil, water and air pollution. Contractors should implement appropriate environmental protection measures. They should also consider obtaining separate pollution liability insurance to cover potential cleanup costs and liabilities associated with environmental damage.

  • Contractual Disputes

Disputes arising from contractual obligations between parties involved in the construction project are typically excluded from contractor all risk insurance coverage. This includes disputes related to project delays, cost overruns, and breach of contract claims. Contractors should ensure that contracts are carefully drafted and reviewed to mitigate the risk of disputes and seek legal advice when necessary to resolve conflicts amicably.

  • Nuclear Hazards

Given the potentially catastrophic consequences of nuclear accidents, contractor all risk insurance policies commonly exclude coverage for damages caused by nuclear hazards or radioactive materials. Projects involving nuclear facilities or activities may require specialized insurance coverage tailored to address these unique risks and liabilities.

  • Consequential Losses

A contractor all risk insurance policy typically covers direct physical damages to the insured property but excludes coverage for consequential losses such as loss of revenue, business interruption, or loss of market value. Contractors should assess their financial risks comprehensively and consider obtaining additional coverage or business interruption insurance to mitigate the impact of such losses on their operations.

  • Subcontractor Default

 While contractor all risk insurance in India may provide coverage for damages caused by subcontractors' work, it often excludes coverage for subcontractor default or insolvency. Contractors should conduct due diligence when hiring subcontractors and consider including contractual provisions or obtaining performance bonds to mitigate the risk of subcontractor default.

Conclusion: 

Understanding the exclusions in your contractor all risk policy is crucial for comprehensive risk management. By familiarizing yourself with these limitations, you can take proactive steps to mitigate potential risks and ensure your valuable assets and ongoing projects are adequately protected. Remember, clear communication with your insurance provider is the key. Discuss any uncertainties regarding exclusions and explore additional coverage options if necessary. With careful planning and the right insurance plan in place, you can navigate construction projects with greater confidence.