Contractors’ All Risks (CAR) Insurance

What Is Contractors’ All Risks (CAR) Insurance?

Contractors’ all risks (CAR) insurance is a non-standard insurance policy that provides coverage for property damage and third-party injury or damage claims, the two primary types of risks on construction projects. Damage to property can include improper construction of structures, the damage that happens during a renovation, and damage to temporary work erected on-site.

Third parties including subcontractors may also become injured while working at the construction site. CAR insurance not only covers those associated risks but also bridges these two types of risks into a common policy designed to cover the gap between exclusions that would otherwise exist if using separate policies.

CAR insurance coverage is common for such construction projects as buildings, water tanks, sewage treatment plans, flyovers, and airports.

Key takeaways:

  • Contractors’ all risks (CAR) insurance is a non-standard insurance policy that provides coverage for property damage and third-party injury or damage claims, the two primary types of risks on construction projects.
  • Damage to property can include improper construction of structures, the damage that happens during a renovation and damage to temporary work erected on-site. 
  • Third parties, including subcontractors, may also become injured while working at the construction site.

Understanding Contractors’ All Risks (CAR) Insurance

Typically, both contractor and employer jointly take out CAR insurance policies, with other parties such as financing companies having the option of being named to the policy. Because multiple parties are included in the policy, they each retain the right to file a claim against the insurer, although all parties have the duty of informing the insurer of any injuries and damages that may result in a claim.

The goal of a CAR insurance policy is to ensure all parties are covered on a project, regardless of the type of damage to the property or who caused the damage. Insurers who underwrite this type of policy lose the right to subrogation, meaning that if it pays out funds to one party in the contract, it cannot seek to recover those funds from another party in the contract.

For example, if the owner of a large building and the contractor working on the building are on the same CAR policy, any damages to the building caused by the contractor can be recovered by the building owner when a claim is filed. The insurer, however, cannot seek to recover funds from the contractor.

Important: Risks often covered under a CAR policy include flood, wind, earthquakes, water damage, and mold, construction faults and negligence; they typically do not cover normal wear and tear, willful negligence or poor workmanship.

A CAR insurance policy also provides coverage against losses or damages caused to property by fire.

Special Considerations

CAR coverage may be extended to cover the interests of manufacturers, suppliers, contractors, and subcontractors. The policy can also be expanded to cover the following events:

  • Additional custom duty
  • Air freight
  • Damage to surrounding property
  • Debris removal
  • Earthquake
  • Escalation
  • Loss due to breakage of glass
  • Maintenance visits

Additionally, CAR policies may be designed to include losses incurred when start-up is delayed because of another insured loss. For example, if a structure is damaged and is covered by CAR insurance, then the losses incurred as a result of a delay in opening the property while the damage is being repaired may also be covered. CAR policies can also be expanded to include a provision for escalation, to cover acts of terrorism, and to cover excess third-party liability, among other less common scenarios.

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