Contractors all risk insurance
Contractors 'all risk' (CAR) insurance for construction companies
What is contractors all risk insurance?
Contractors all risk (CAR) insurance is a package policy designed to meet the needs of builders and construction professionals. Contractors all risk insurance plays an important role in mitigating risks on building sites and protecting the building works whilst in progress. In this comprehensive guide, we will look at the definition of contractors all risk insurance, its purpose, and the importance it holds for construction professionals.
Definition of contractors all risks insurance
Contractors all risks insurance is a policy that provides coverage for damage or loss of the building works in progress on a construction site. The cover can reinstate or repair the building works resulting from any type of loss or damage, hence the cover is referred to as 'all-risks'. The coverage is commonly referred to in JCT contracts to identify which party is responsible to arrange. For building works to existing buildings, it is usually the responsibility of the principal to arrange cover, however it is common for construction professionals to arrange on their behalf.
Package contractors all risk insurance
A contractors all risk insurance policy will always include contract works insurance. However, if the coverage is arranged on an annual basis as opposed to project specific, the policy can also include coverage for public liability insurance, employers' liability insurance, own plant, hired-in plant, and JCT coverage.
Depending upon the size of the contract value, contract works insurance can be purchased cost-effectively on a package basis with your employers and public liability insurance. Typically, once the contract value exceeds £500k to £1m, you will be required to purchase a stand-alone CAR policy to meet the requirement.
Typically, under JCT contracts (2005/2011/2016) it will be the responsibility of the employer for new builds to purchase the cover in joint names. However, it is usually the main contractor who will arrange the coverage, unless the employer wants to specifically arrange the construction insurance themselves.
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Different parties in construction projects
It is common for multiple parties to be named as insured parties on a contractor all risk insurance policy, given they have a financial interest in the project. It’s important to remember that policies will only return you to the same financial position before the loss or damage occurred. Main contractors, principals, financers, are commonly included, but sub-contractors and suppliers can also be included.
Public liability insurance
Although public liability insurance will offer protection against property damage, it will only provide coverage to the builder when negligence can be proved. Therefore, contractors 'all risk' is critical in protecting the development against a range of additional risks and perils that could damage the works in progress. For example, fire, theft, vandalism, storm, floods - it’s worth noting the perils to trigger a claim are not defined under an ‘all risk’ policy.
Annual or project specific insurance
Contract works insurance can be arranged on either an annual or project specific basis. The need to arrange a project specific policy will typically be determined by the size of the project and whether a principal or financier wants to be named on a policy. These options will not typically be made available under a package contractor all risk policy, but a standalone contract work policy. Please give us a call to discuss your specific requirements.
Understand how a contractors all risk insurance policy works
Contract works and Contractors All Risk
The terms can be interchangeable within the building trade and arranging the cover can be the responsibility of either the employer or the main contractor. Contract works insurance will reinstate or repair the building works resulting from any damage or destruction. It’s important to note both contract works and liability covers will need to be arranged to provide for contractors all risk.
Public Liability verses 'All Risk' Contract Works
Public liability insurance will cover claims arising from injury or property damage of persons other than your employees or labour only subcontractors. It will be the responsibility of each contractor to purchase their own public liability. The cover can be arranged separately with employers liability insurance, or under a contractor all risk insurance policy.
Additional JCT 6.5.1 insurance
Otherwise known as non-negligence insurance, will protect against claims should there be damage to a neighbouring property. Collapse, subsidence, heave, vibration, weakening or removal of support, or lowering of groundwater, can all result from building works which is not which is not the result of negligence on behalf of the contractor. The cover can be arranged under a contractors all risks policy or on a stand-alone basis and will protect the employer.
Do you need joint names contractors all risk insurance?
It’s important to understand who has an insurable interest in the works being developed. It’s common practice to have the contractor and employer take out the policy on a joint names basis. Then at the request of the project financier, they may require you to name them as an additional insured or as a first loss payee. It’s worth noting that CAR policies can be extended to cover the interest of subcontractors, contractors, manufacturers, or even suppliers.
Employer / Principal - As the client of the project you have a vested interest should the works be damaged or destroyed before practical completion.
Builder / Contractor - As the person responsible for undertaking the works, the main contractor will typically organise the cover on behalf of the employer.
Financer / Lender - As the person which has financed the development, you may require assurances that you are named party on the CAR policy.
Contract works
Will help protect the work in progress on a construction site in the event of damage before responsibility has been handed to the principal. Note if you are working on an existing structure, the existing structure will not be covered and should be insured by the property owner. Contract works insurance will cover any loss or damage to the property and materials.
Public liability
Helps protect against claims arising from injury or property damage of persons other than your employees (i.e., customers, suppliers, contractors or third persons) in the course of your construction activities.
Employers liability
Helps protect against claims arising from injury or illness of your employees. Note all companies under UK law have a legal duty to protect the safety of their employees at work. Employers liability insurance is one of the few types of insurance compulsory in the United Kingdom.
Own plant & equipment
Can protect against damage to own plant and equipment whilst in your custody or control or hired out under a defined agreement. For example a large stone fell onto the roof of an excavator cab, causing extensive damage to the machine and rendering it uneconomical to be repaired. The amount paid under the policy was £65,000. Coverage will also typically include scaffolding, temporary buildings, site office contents and site welfare facilities.
Hired-in plant
Helps protect your legal liability under the terms of your hiring agreement to pay compensation for damage to hired-in plant, whilst in your custody or control. For example, an electrical fire caused damage to piling plant. Forensic examination showed the source of fire and an amount of £20k was paid to repair the machinery.
Employee tools
Protect against damage to personal tools and effects belonging to an employee, or principle. Cover can vary from policy to policy, so consider whether you have the protection you need.
Calculating your contractors all risk insurance cost
Insurers will calculate your insurance premium depending upon a number of factors because each provider will have their own method of assessing your risk of claim. However, there are common considerations that underwriters will focus on:
Contract value - How much contract works insurance you will require will be a significant price determining factor. If a fire were to destroy the build you were responsible, the size of the maximum possible loss will impact your premium calculation.
Type of project - Basement works, timber construction, demolition works, quarrying, tunnelling, flood exposed areas, road construction, bridgework, external work on high-rise buildings, piling, ground stabilisation, underpinning, are all considered high risk.
Security - Additional security features that will improve your risk profile and reduce your premium cost. These can include cameras, alarms, boundary fence, and 24 hour security.
Why consideration of the defects exclusion is important?
Most CAR losses will arise from straight forward events such as a fire or water damage. However, in some circumstances there maybe contributary factors such as defects with design, planning, specification, materials, or workmanship. Some policies will maintain a total exclusion arising from defects, which can significantly limit the scope of cover. Whereas, the majority of insurers will exclude the contracts works which is in a defective condition, but will include cover for the parts of the contract works which is damaged because of the defect. The difference between the different types can have a significant impact on the amount paid out under a policy.
What additional builders insurance covers should be considered?
Whilst a CAR 'all risk' policy can provide for a number of covers designed specifically for the construction industry, this does not mean your business shouldn't consider other insurance policies. To discuss your business needs, speak to one of our expert construction insurance brokers.
Professional indemnity
The requirement to purchase professional indemnity insurance will be based on your responsibilities and contractual obligations. A design and build contract, describes a situation where the main contractor is appointed to design and construct the works. As opposed to a traditional construction contract, where the client appoints consultants to undertake the design and then a contractor to build the works. It's worth noting that as the main contractor that employs an architect you can be held vicariously liable for the work undertaken if there is an error with the design.
JCT Insurance
Otherwise known as non-negligence insurance, will offer protection against liability claims arising from damage to a neighbouring property. During the project the contractors may not have any mistakes, but the employer or principal could still be exposed to potential litigation. Collapse, subsidence, heave, vibration, weakening or removal of support, or lowering of groundwater claims from neighbours can be expensive.
Directors & officers liability
Given the nature of construction projects and the complexities involved, construction companies should prioritise compliance with safety regulations and environmental laws. Failure to do so could mean that individual directors are targeted for breaches of regulation. Directors and officers insurance can provide valuable protection for individuals in leadership positions.
We work with a wide range of construction project insurers to meet our client’s needs:
At Get Indemnity™ we are regulated by the FCA and are protected by the Financial Ombudsman Service and the Financial Services Compensation Scheme.
Frequently asked questions
Do you need an annual contractor all risks insurance policy or project specific?
Contract works under a contractor all risks insurance policy will typically be purchased on an annual basis by the respective parties, for their own needs. An annual contract works policy will cover all work undertaken in that year, up to a maximum contract value per project. This is usually the most cost-effective solution for contractors who typically undertake multiple projects each year. Larger building projects may prefer to arrange their CAR insurance for all parties on a project specific basis. However, issues can arise if there are delays in construction and this extends past the agreed policy period.
Who should purchase the project's contract works insurance cover?
Your contract with the employer will typically set out the responsibilities of each party, including who is contractually obliged to insure the various elements of the build under a contractor’s all risk insurance policy. JCT contracts are the mostly commonly used in the UK (75% of all construction projects) and will identify what insurance covers you are required to purchase and who's responsibility they are. It's worth considering that although it may be contractually the responsibility of the employer, the insurance is usually more accessible through the builder’s insurance broker.
Do we need a first loss payee endorsement?
The policies can be endorsed to ensure all parties are covered on a project, regardless of who is at fault. This can include an ‘additional insured’ or 'first loss payee' endorsements for financiers of the project. To make the request to include a financier, please identify how they want to be named on the policy, confirmation of the legal entity and their registered address.
What does 'all risk' mean?
'All risk' is a type of insurance policy that doesn't name all the insured perils that are covered by the policy. For example, fire, flood, storm, flood, etc. All risk means the policy will respond to all causes of damage to the works in progress.
Why contractors all risk insurance is important?
Coverage for Physical Loss or Damage: CAR insurance provides coverage for physical loss or damage to the contract works, construction materials, and other property involved in the project. This includes cover for events such as fire, flood, theft, vandalism, and accidental damage.
Protection during Construction: Building projects are inherently risky, with various hazards present on-site. CAR insurance helps protect contractors against unexpected events that could result in financial losses, ensuring that the project can continue without significant disruptions.
Third-Party Liability Coverage: CAR insurance can include liability cover for third-party bodily injury or property damage arising from the construction activities. This cover is paramount in case the contractor is held legally responsible for injuries or damage to third parties.
Coverage for Own Plant and Equipment: Contractors often use their own plant, machinery, and equipment during construction projects. CAR insurance can provide coverage for the loss or damage to these items, helping to minimise the financial impact on the contractor.
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