In the world of construction and infrastructure development, unpredictability is a constant challenge. Contractors and project stakeholders face various risks, including natural disasters, human errors, theft, and equipment failure. Contractors All Risk (CAR) Insurance offers a comprehensive solution to mitigate these uncertainties, ensuring financial protection and business continuity.
This blog explores who is covered under a CAR Insurance Policy in India and why it is essential for construction projects.
Contractors All Risk Insurance: A Brief Overview
The CAR Insurance Policy is a specialised policy designed to provide comprehensive coverage for construction projects. It safeguards against a wide range of risks that may arise during the construction, installation or repair of buildings and infrastructure.
Key Coverages of CAR Insurance:
- Material Damage: Covers accidental physical loss or damage to the construction site, materials and equipment- caused by unforeseen events.
- Third-Party Liability: Covers legal liability arising from property damage or bodily injury to third parties due to construction activities of the insured.
By offering financial protection, CAR Insurance helps project stakeholders remain stable even in the face of unexpected events.
Who is Covered Under Contractors All Risk Insurance?
CAR insurance primarily covers contractors and project owners, with optional extensions for other stakeholders. The policy does not automatically cover all parties involved unless they are explicitly included in the policy. Below is a breakdown of who can be covered:
1. Contractors
Primary beneficiaries of CAR Insurance, contractors execute the construction project and face multiple risks such as:
- Damage to construction materials and equipment
- Natural disasters (floods, earthquakes, cyclones)
- Accidental damage due to machinery failure
- Theft or vandalism at the construction site
Why it matters: CAR Insurance ensures that contractors do not bear the financial burden of these risks and can continue operations smoothly.
2. Project Owners and Property Developers (Employers)
Project owners and property/infrastructure developers invest significant capital in construction projects. CAR Insurance provides protection against:
- Damage to the project due to insured risks
- Legal liabilities arising from third-party claims
Why it matters: By transferring risk to the insurance provider, project owners and property/infrastructure developers can focus on timelines and budgets without additional financial stress.
3. Subcontractors (If Included in the Policy)
Subcontractors handle specific tasks like plumbing, electrical work or painting. Since they face similar risks as the contractor, they can be included if specified in the policy.
Why it matters: CAR Insurance safeguards subcontractors’ interests, ensuring they can work without worrying about potential losses.
4. Engineering & Construction Projects
Major engineering and construction firms involved in large-scale industrial, commercial, or infrastructure projects can be covered under CAR Insurance. This includes projects like metro rail systems, power plants, dams and high-rise buildings.
Why it matters: These projects involve high-value assets and complex risks, making CAR Insurance essential for comprehensive risk management.
5. Government-backed projects
Government agencies and public sector undertakings (PSUs) often undertake large-scale infrastructure projects, such as roads, bridges, and public buildings. CAR Insurance can be included in these projects to ensure financial protection against construction-related risks.
Why it matters: Many Government contracts require CAR Insurance to safeguard public funds and ensure project completion without financial setbacks.
6. Financiers and Lenders (Only If Named in the Policy)
Banks and financial institutions are not automatically covered under CAR Insurance. However, financiers often require CAR Insurance as a prerequisite before disbursing construction loans.
Why it matters: While financiers are not direct beneficiaries, CAR Insurance ensures that insured losses do not disrupt project completion, indirectly protecting their investments.
7. Engineers, Architects and Consultants (Not Covered for Professional Errors)
Professional consultants play a crucial role in project design and execution. However, CAR Insurance does not cover professional errors or negligence—they require Professional Indemnity Insurance for such risks.
Why it matters: For this group of people, CAR Insurance can only provide coverage for physical damages. For losses/damages related to design flaws or miscalculations, they need separate professional liability insurance.
8. Third Parties (Covered for Accidental Damages)
Construction activities often impact third parties, such as neighbouring property owners or the general public. CAR Insurance includes third-party liability coverage for:
- Accidental property damage (e.g., a construction crane damages a nearby building)
- Bodily injury (e.g., debris from the site injures a passerby)
Why it matters: This coverage protects contractors from costly compensation claims and ensures affected third parties receive compensation.
Why is CAR Insurance Essential for Construction Projects?
Construction projects in India face high financial risks due to unpredictable events. CAR Insurance is an important safeguard, providing multiple benefits:
1. Comprehensive Coverage Against Unforeseen Risks
Protects against fire, theft, natural disasters and accidental damage, ensuring project continuity.
2. Protection Against Third-Party Liability
Covers legal claims from third parties affected by construction activities.
3. Compliance with Contractual Requirements
CAR Insurance is not legally mandatory in India but is often a contractual requirement for large construction projects.
4. Coverage for Tools, Equipment and Materials
Protects against theft, damage or destruction of construction materials and machinery.
5. Financial Security
Minimises out-of-pocket expenses for contractors and project owners in case of accidents.
6. Customizable Policy
Coverage can be tailored to include optional add-ons, such as coverage for labour welfare and delay-related losses.
7. Business Continuity Assurance
Reduces financial disruptions caused by delays, penalties and reputational risks.
8. Addresses India-Specific Risks
Policies can be designed to address regional risks such as earthquakes, cyclones and monsoons.
Contractors All Risk Insurance Claims Process
If an insured event occurs, the claims process is structured to ensure transparency and efficiency.
1. Incident Reporting
- The insured must notify the insurer immediately and within 14 days of the event.
- In cases of theft or major accidents, a police report is required.
2. Documentation
The insured must submit:
- Claim form detailing the event
- Photographs of the damage
- Site records and invoices for damaged items
3. Loss Assessment
- A licensed surveyor inspects the damage and prepares a report.
4. Claim Evaluation
- The insurer verifies if the claim is covered under the policy terms.
5. Settlement Offer
- The insurer approves or rejects the claim based on policy conditions.
- Compensation is provided as per policy limits and deductibles.
6. Dispute Resolution (If Required)
- If the insured disagrees with the settlement, they can escalate the issue to the Insurance Ombudsman or Arbitration.
7. Claim Payment
- Once approved, the settlement amount is transferred to the insured’s account.
Key Considerations:
- Claims must be reported on time as per policy guidelines.
- Settlements exclude uncovered risks such as professional errors or contractual penalties.
The Bottom Line
Contractors All Risk Insurance is an indispensable tool for managing risks in India’s construction industry. It ensures that contractors, project owners and third parties are financially protected against unexpected losses.
Whether you are a contractor, project owner or financier, understanding who and what is covered under a CAR Insurance Policy is crucial. With the right insurance partner, you can focus on building the future while leaving the risks in capable hands.
