Key Takeaways
- CAR Insurance offers broad protection but has important exclusions.
- Certain project risks require separate endorsements or standalone insurance policies.
- Reviewing policy wording before project commencement can help avoid claim disputes.
- Combining CAR Insurance with other engineering and liability covers strengthens project protection.
Did You Know? Construction projects are becoming increasingly digital through technologies like Building Information Modelling (BIM), IoT devices, and remote monitoring. As a result, risks such as cyberattacks and data breaches typically excluded under CAR policies are becoming more relevant for EPC contractors.
What is an EPC Construction All Risk (CAR) Insurance Policy?
A Construction All Risk (CAR) Insurance Policy is designed to protect construction projects against accidental physical loss or damage during the construction period. It may also provide third-party liability cover for bodily injury or property damage arising from project activities, subject to the policy terms.
However, every CAR policy contains exclusions, deductibles, and coverage limitations. Understanding these exclusions is essential to ensure your project has adequate financial protection.
Did You Know? Construction projects are becoming increasingly digital through technologies like Building Information Modelling (BIM), IoT devices, and remote monitoring. As a result, risks such as cyberattacks and data breaches typically excluded under CAR policies are becoming more relevant for EPC contractors.
10 Common Coverage Gaps in EPC Construction All Risk Policies
1. Defective Design or Faulty Workmanship
Most CAR policies do not cover losses arising purely from defective design, poor workmanship, or faulty materials. Contractors involved in design-build projects should review policy extensions and consider Professional Indemnity Insurance where appropriate.
2. Professional Errors and Omissions
Design consultants, architects, and engineers may face claims arising from professional negligence. Such liabilities are generally outside the scope of a CAR policy and may require separate Professional Indemnity Insurance.
3. Normal Wear and Tear
CAR Insurance protects against sudden and unforeseen events, not gradual deterioration. Damage resulting from corrosion, ageing, rust, or routine wear and tear is generally excluded.
4. Existing Property
Projects involving renovation or expansion may include existing buildings or adjacent structures. Unless specifically covered through an endorsement, damage to existing property may not be insured under the CAR policy.
5. Mechanical or Electrical Breakdown
Mechanical or electrical failures of construction equipment may not always be covered, particularly when caused by internal defects rather than external accidental events. Separate Machinery Breakdown Insurance may be required depending on the equipment and project requirements.
6. Delay in Project Completion
A CAR policy generally covers physical damage but does not compensate for financial losses resulting from project delays, loss of revenue, or liquidated damages. Contractors may need Delay in Start-Up (DSU) or Advance Loss of Profits (ALOP) cover for such risks.
7. Cyber Risks
Construction projects increasingly rely on digital project management systems, drones, and connected equipment. Cyber incidents such as ransomware attacks, data breaches, or system failures are generally excluded from CAR policies and may require dedicated Cyber Insurance.
8. Contractual Penalties
Penalties arising from contractual obligations, including liquidated damages for delayed completion, are typically not covered unless specifically provided for under the policy.
9. Employee Injuries Beyond Policy Scope
Although CAR policies may include limited third-party liability, they are not a substitute for employee protection. Employers should consider Workmen’s Compensation Insurance or Liability Insurance to cover work-related injuries.
10. Pollution and Environmental Liability
Gradual pollution, environmental contamination, and cleanup costs are generally excluded under standard CAR policies. Projects with environmental exposure may require specialised Environmental Liability Insurance.
Coverage Gaps at a Glance
|
Coverage Gap
|
Typically Covered Under CAR?
|
Additional Protection
|
|
Faulty Design
|
❌
|
Professional Indemnity Insurance
|
|
Professional Negligence
|
❌
|
Professional Indemnity Insurance
|
|
Mechanical Breakdown
|
Limited
|
Machinery Breakdown Insurance
|
|
Delay in Completion
|
❌
|
DSU/ALOP Cover
|
|
Cyber Risks
|
❌
|
Cyber Insurance
|
|
Existing Property
|
Depends on policy
|
Policy Extension
|
|
Employee Injuries
|
Limited
|
Workmen Compensation Insurance
|
|
Pollution Liability
|
❌
|
Environmental Liability Insurance
|
Pro Tip: Before purchasing a CAR policy, review the exclusions, deductibles, and available extensions carefully. Tailoring the policy to your project's specific risks can help minimise uninsured losses and improve claims preparedness.
How to Reduce Coverage Gaps
Contractors and project owners can reduce uninsured exposures by:
- Conducting a detailed project risk assessment before policy purchase.
- Reviewing contract requirements and insurance obligations.
- Selecting suitable policy extensions where available.
- Reviewing the policy periodically as project risks evolve.
Conclusion
Construction All Risk Insurance is a critical safeguard for EPC projects, but it should not be viewed as a blanket solution for every project risk. Understanding common coverage gaps allows contractors and project owners to make informed insurance decisions, reduce claim disputes, and strengthen overall project resilience. Reviewing policy terms and seeking expert advice before project commencement can go a long way in ensuring comprehensive financial protection.
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