Introduction to Construction All Risks Insurance

In an era of unprecedented complexity, construction projects are breaking new ground every day. But with pioneering progress comes evolving risk. As your strategic partner, we believe that tackling this landscape requires more than just a policy; it demands a fresh perspective and a forward-thinking approach to protection.

This is the first in our series designed to cut through the complexity of Construction All Risks (CAR) insurance. We’ll unpack the critical components, challenge common misconceptions, and provide the clarity you need to build with confidence.

Key CAR Configurations

CAR insurance is the traditional bedrock for projects involving the construction of buildings and infrastructure. (Its counterpart, Erection All Risks or EAR, is typically used for installing electrical or mechanical equipment). The policy itself is most commonly arranged in one of two ways:

1. Project-Specific: Tailored for a single, unique project, this policy recognises the specific characteristics and challenges of the work being carried out. It’s a bespoke solution for a distinct venture.
2. Annual: Designed to cover a portfolio of general activity over a 12-month period. This is an efficient approach for a continuous stream of projects that fit within pre-agreed criteria like value, duration, and scope.

Choosing the right structure is the first step in creating robust protection against complex risk.

What Does ‘All Risks’ Really Mean?

The term 'all risks' is misleading because it doesn't mean every single risk is covered; there are always exclusions. Instead, it signals a powerful shift in perspective from a standard “specified perils” policy (which only covers a finite list of named causes).

An “all risks” policy works in reverse: it covers everything except for what is specifically excluded. This provides a much broader foundation of cover. The operative clause, the engine of the policy, will state this clearly:

The insurers will indemnify the insured in respect of all risks of damage to the property insured arising during the period of insurance from any cause not excluded whilst within the territorial limits and subject to the sum insured.

Understanding these key terms is crucial, so let's dive into the details.

The operative clause, key terms

The Insured: Construction contracts are complex webs of obligation. Policies are therefore often drafted to cover various counterparties, sometimes unnamed. However, court decisions frequently limit cover to the extent required by the underlying contract. The takeaway: Unless all parties are explicitly named, the contract is king.

Damage: This is a critical distinction. For cover to trigger, there must be a detrimental physical change to the insured property. Think of it this way: something “good” has to go “bad.” A wall that is built correctly and then collapses due to a storm has suffered damage. A wall that was simply built incorrectly from the start is defective, not damaged. This is a vital concept we will explore in-depth when we tackle defects coverage later in this series.

Property Insured: A CAR policy can protect multiple categories of property, including:

• The primary works in progress.
• Materials, even when stored off-site (with extension).
• Owned or hired-in construction plant and equipment.
• Temporary site buildings and their contents.
• Permanent premises used temporarily as site offices.
• Tools and equipment owned by employees.

Period of Insurance: Cover typically starts with the project and ends at practical completion. Crucially, some protection can extend into the defects rectification period (e.g., 12-24 months post-completion), but this is often limited to damage that originates from a cause during the main construction period. We will dive deeper into this Maintenance Period cover in a future article.

Territorial Limits: The policy operates within defined geographical boundaries. Any damage occurring outside these limits is not covered. This demands special consideration for materials or prefabricated components being sourced, manufactured, or stored abroad before transport to the project site.

Sum Insured: This is the policy’s maximum payout. For a project policy, it’s the total reconstruction cost. For an annual policy, it’s typically the maximum individual project value anticipated during the period of insurance. Note that certain extensions, known as “additional costs covers,” can pay in addition to this main sum, meaning the total indemnity for a claim can exceed this figure. Again, we will deal with these additional costs covers later in this series.