Contractors all risk insurance
Who needs contractors all risk insurance and how to secure cover?
What is contractors all risk insurance?
Contractors all risk insurance is a comprehensive policy designed to cover the financial risks associated with construction projects. Contractor all risk insurance coverage can play an important role in providing protection to the building works whilst they are in progress and is commonly requested under contracts such as JCT.
The main cover under a CAR insurance policy is contract works insurance that will reinstate or repair the building works in progress resulting from any type of loss or property damage. The cover is called 'all-risks' because it will cover all perils without them being defined, such as fire, flood, storm, theft, vandalism, explosion, ect.
Additionally, contractors all risk insurance coverage can can include public liability insurance, product liability insurance, and employers liability insurance. Whereas, additional property insurance can extend to plant, equipment and machinery on the construction site, whether owned or hired-in from a third-party.
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Who needs contractors all risk insurance?
Every building project should arrange contractors all risk insurance to cover the cost to reinstate or repair the works in progress resulting from any type of loss or property damage. If a storm or fire destorys half the project and you are not insured, who is going to financially suffer? Typically, both the employer or principal and contractor will have an insurable interest in the project build.
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 construction project. Main contractors, principals, financers, are commonly included, but sub-contractors and suppliers can also be included. 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 contractor all risk insurance policy.
What does contractors all risk insurance cover?
Contract works vs contractors all risks insurance
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.
Does public liability insurance cover contractors?
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.
Do you need 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.
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.
Site 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.
Contractor all risk insurance explained
It’s important to understand who has an insurable interest in the building works being developed. It’s common practice to have the contractor and employer take out the contractor all risk insurance 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 insurance 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 insurance policy.
Building contractors all risk insurance providers
At Get Indemnity™ we are regulated by the Financial Conduct Authority and are protected by the Financial Ombudsman Service and the Financial Services Compensation Scheme.
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Frequently asked questions
Do you need an annual contractors all risk insurance policy or project specific?
Contract works under a CAR 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 contractors 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 is the maximum coverage limit for contractors all risk insurance?
The maximum coverage limit will be the contract value of the project given the insurance policy can only provide indemnification - which puts you back into the same financial position you were before the loss or damage occured.
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 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.
D&O insurance
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 coverage can provide valuable protection for individuals in leadership positions.
Cyber insurance
Cyber coverage helps businesses safeguard their finances, ability to operate, and reputation, by providing financial protection and resources to navigate a cyber attack or data breach.
What are the common cover sections under a CAR policy?
The business insurance can provide financial protection through:
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.
Does contractors all risk insurance cover defective workmanship?
Most 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.
When do we need property owners insurance?
Once the construction is complete it is important to ensure that the build is insured under a property owners insurance policy. Each policy will contain specific clauses and definitions which will cease cover once the works are completed.
Is construction all risk insurance different?
Construction all risk cover is another term for contractor all risks insurance.
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