Contractors All Risk Insurance protects against accidental loss, damage, or destruction to the work in progress on a building site.
It's common for project specific Contractors All Risk (CAR) policies to be arranged on a joint names basis with the employer and the main contractor.
Additional covers for JCT 6.5.1, liability, own plant, hired-in plant, and employee tools can be included under comprehensive CAR insurance.

What is Contractors All Risk Insurance?

Contractors All Risk (CAR) insurance is a comprehensive policy covering loss or damage to works under construction, and can include cover for construction liabilities, materials, tools, machinery, temporary structures, and equipment at the construction site.

The main cover provides protection for accidental loss, damage, or destruction to the work in progress on a building site. Whilst the policy can also pay legal costs incurred in defending allegations and pay damages from any award or settlement arising from property damage or bodily injury. We've produced the below guide to explain how Contractors All Risk Insurance can provide important financial protection to mutliple parties on a building site.

Who needs Contractors All Risk Insurance?

Every building project should arrange cover to protect against the cost to reinstate or repair the works in progress resulting from loss or property damage during the course of the construction project. The main contractor's contract with the client will typically set out the responsibilities of each party, including who is contractually obliged to insure the various elements of the build.

Building projects will typically involve large sums of money and it's important that if an accident occurs - for example a fire destorys the timber frame, who is responsible and how will reinstatement of the works be funded? It's common for the employer, main contractor, and financier to have an insurable interest in the project build which needs financial protection. Contractors all risk insurance can be extended to cover the interests of subcontractors, manufacturers, and even product suppliers.

Contractors all risk insurance can be arranged on either an annual or project specific basis to protect stakeholders. The need to arrange a project specific policy will typically be determined by the size of the construction project and whether a principal or financier wants to be named on a contractors all risk insurance policy.

Contract Works Insurance

Contract works insurance is the main cover provided under a CAR policy and will reinstate or repair the building works resulting from any accidental loss, damage, or destruction to the work in progress. The terms can be interchangeable and when Contractors All Risk Insurance is requested under contract, the cover typically being requested is Contract Works.

The cover is referred to as 'All-Risks' because it will cover all perils or risks to property damage to the works in progress - these can include: fire, flood, storm, theft, vandalism, and explosion. It is worth highlighting the insurer does not have the right to recover funds from another party and will simply to pay out funds to the relevant parties under the insurance policy.

Material damage

Material or property damage insurance protects against damage or loss to physical assets, such as buildings under construction, machinery, equipment, and temporary structures. Common perils and risks covered include:

• Fire and explosions

• Theft and vandalism

• Floods, storms, or other natural disasters

• Accidental damage

Unlike standard construction insurance policies, CAR insurance provides a tailored solution to the specific needs of building projects and construction risks.

Project specific Contractors All Risk (CAR) policies to be arranged on a joint names basis

Public Liability Insurance and JCT 6.5.1

Although public liability insurance will offer protection against material damage, it will only provide protection to the builder when negligence occurs. Whereas, JCT 6.5.1 insurance can protect against claims should there be damage to a neighbouring property and there hasn't been negligence.

For example, 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. JCT 6.5.1 insurance can be arranged under Contractors All Risks Insurance or on a stand-alone basis - typically on a joint names basis to ensure protection for both the employer and main contractor.

Own plant & equipment, hired-in plant, and employee tools

Own plant and equipment insurance helps protects against damage to own plant and equipment whilst in your custody or control or hired out under a defined agreement. For example: scaffolding, temporary buildings, site office contents and site welfare facilities. Whereas, hired-in plant and equipment insurance will help 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.

Employee tools insurance will help 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.

Do you need an annual or project specific CAR policy?

Contract Works Insurance under a CAR policy will typically be purchased on an annual basis by the respective parties, for their own needs. An annual Contract Works policy can cover all works 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.

However, employers may wish that Contract Works Insurance is provided on a joint names basis and that their cover is ring fenced - which means cover should be arranged for all parties on a project specific basis. However, issues can arise if there are delays in construction and the policy period isn't sufficient and has to be extended.

Common exclusions in CAR Insurance

Definitions, insuring clauses and exclusions vary from policy to policy, therefore it's worth considering whether the specific cover meets your needs. Below we've identifed some common exclusions:

Pre-existing Damage: Any material damage that occurs before the inception date of the policy.
Deliberate Acts: Intentional damage or illegal actions by policyholders or their employees.
Wear and Tear: Normal degradation, corrosion, and deterioration would typically be excluded.
Defective Workmanship: Claims arising from poor workmanship or incorrect design unless specifically endorsed.
Consequential Loss: Losses resulting from project delays, penalties, or liquidated damages.

Can cover for defective workmanship be provided?

Most losses will arise from straight forward events such as a fire or water damage. However, in some circumstances there maybe contributory 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.

How do insurers assess your construction risk?

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.

Additional insured or first loss payee?

The policies can be typically be endorsed to ensure all parties that have a financial interest 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.

Do we still need Professional Indemnity Insurance?

A design and build contractor will typically need professional indemnity to offer protection against liabilities arising from failing to perform their duties with the level of skill and care expected within the construction industry.

For example, as the main building contractor that employs an architect you can be held vicariously liable for the work undertaken, even if it was directly not your fault.

Written by Simon Taylor

Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.

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