In the construction industry, the journey from blueprint to reality is a complex process that involves multiple risks. A construction project faces numerous challenges, such as property damage, legal liabilities and financial losses. These risks can lead to delays, cost overruns or even project abandonment.
To safeguard against such uncertainties, Contractors’ All Risk Insurance (CAR insurance) plays a crucial role. This policy provides financial protection against unexpected incidents that could disrupt construction progress. But what does this insurance cover, and what are its limitations?
This article provides a detailed overview of Contractors’ All Risk Insurance, explaining its coverage, exclusions and benefits. Whether you are a contractor, builder or project financier, this guide will help you understand how CAR Insurance secures your construction projects.
What is Contractors’ All Risk Insurance?
Contractors’ All Risk Insurance is a comprehensive insurance policy designed to protect construction projects against physical damage and third-party liabilities. It covers construction materials, machinery and the project site from unforeseen events like natural disasters, accidental damages and third-party claims.
The policy coverage begins from the moment work starts or after the insured property is unloaded at the project site. It remains in force throughout the construction and maintenance period, until the project is handed over or the policy expires—whichever occurs first.
The primary goal of a CAR policy is to ensure project completion without financial disruptions, helping contractors maintain their project timelines and budgets.
Key Features of Contractors’ All Risk Insurance
- CAR policies cover civil engineering projects where civil works account for more than 50% of the contract value.
- The policy remains active during storage, construction/erection and maintenance phases, as long as these activities fall within the insured period.
- It covers physical loss, property damage and third-party liabilities, except for risks that are explicitly excluded in the policy.
Who Needs Contractors’ All Risk Insurance?
Contractors’ All Risk Insurance is essential for anyone involved in construction projects, including:
✅ Contractors executing the construction work.
✅ Project owners or developers overseeing the project.
✅ Financial institutions funding the project.
✅ Subcontractors involved in the construction process.
To avoid coverage gaps, all project participants can be insured under a single CAR policy.
What is Covered Under a CAR Policy?
A typical Contractors’ All Risk Insurance policy in India includes the following coverage:
1. Damage to Construction Material and Property
Covers accidental loss or damage to materials, equipment and partially constructed structures due to unforeseen events.
2. Third-Party Liability
Protects the insured against legal liabilities arising from accidental damage to third-party property or injuries to third persons.
✅ However, employees/workers of the contractor or project owner are not covered.
3. Natural Disasters and Major Perils
CAR policies typically cover damages caused by:
✅ Fire, explosion, lightning
✅ Earthquakes, landslides, cyclones, storms, floods
✅ Water damage (only for projects in rivers, canals, lakes or near seas)
4. Collapse of Structures
Coverage includes partial or total collapse during construction, subject to policy limits and deductibles.
5. Debris Removal Costs
Reimburses expenses for debris clearance and site cleanup after an insured event.
6. Negligence and Human Errors
If negligence or human error results in physical loss or damage, the policy provides compensation. However, it does not cover faulty design or construction planning errors unless they lead to physical damage.
7. Inland Transit Coverage
Protection for construction materials and equipment during transport to the project site.
What is Not Covered Under CAR Insurance?
The following exclusions apply to a Contractors’ All Risk Insurance policy:
❌ War and war-like situations
❌ Nuclear threats and radioactive contamination
❌ Willful negligence of the insured
❌ Cessation of work (partial or total work stoppage)
❌ Damage due to faulty design (unless it causes physical damage)
❌ Mechanical breakdown or explosion of construction equipment
❌ Loss due to wear and tear or gradual deterioration
❌ Terrorism (unless specifically included as an add-on cover)
Example: Claim for Flood Damage Repair Costs
Incident
A construction company was building a residential complex when an unexpected flood caused severe damage to the partially built structures, materials and equipment.
Resolution
If the company had CAR Insurance with flood coverage, the policy would cover:
✅ Repair costs for damaged structures.
✅ Debris removal expenses.
✅ Third-party claims, if any.
However, the policy would not cover delays or financial losses due to project suspension.
Available Coverage Extensions in CAR Insurance
Contractors’ All Risk policies offer optional add-ons for enhanced protection, including:
✔ Earthquake coverage
✔ Terrorism coverage (if opted)
✔ Escalation coverage for rising costs
✔ Extended maintenance coverage
✔ Clearance and debris removal
✔ Third-party liability (higher limits)
✔ Damage to surrounding property
✔ Firefighting expenses
✔ Strike, riot, and civil commotion (SRCC) coverage
✔ Suspension of testing coverage
Benefits of Contractors’ All Risk Insurance
1. Comprehensive Protection
Covers construction materials, equipment and property against unforeseen risks.
2. Third-Party Liability Coverage
Shields the insured from legal liabilities due to accidental third-party damage.
3. Financial Security Against Natural Disasters
Ensures protection from earthquakes, floods, storms and other perils.
4. Minimises Project Delays
Provides financial support for repairs and rebuilding, reducing delays.
5. Worker Safety and Compliance
Includes third-party injury coverage (excluding workers’ compensation).
6. Flexibility in Coverage
Policies can be customiesd based on project size and risk level.
7. Legal and Contractual Compliance
Many projects require contractors to have CAR Insurance as part of contractual agreements.
Final Thoughts
Construction is more than just bricks and steel—it is about turning visions into reality. However, unforeseen risks can threaten a project’s success. Contractors’ All Risk Insurance acts as a financial shield, ensuring that projects stay on track despite unexpected setbacks.
By understanding CAR Insurance coverage and exclusions, contractors can choose the right policy to safeguard their projects. With proper risk management, they can build not just structures but secure futures.
