Contractors All Risk or Erection All Risk? How to Choose the Right Policy for Your Project

The short answer

Choose by what you are mainly building. If the project is mostly civil or building works, such as a building, road, bridge or drainage, contractors all risk (CAR) is usually the fit. If it is mainly about installing machinery, plant or steel structures, erection all risk (EAR) is usually the fit. Many projects have both parts, and then the cover is arranged to include both. The insurance clause in your contract should have the final say, not the policy name.

This guide is about choosing between the two. For a full explanation of each policy, see our articles on erection all risk insurance and contractors all risks insurance.

Start with the contract, not the policy name

Contracts and tender documents often say what insurance is required, and sometimes the wording is loose, such as "all risks on the works". Before you ask for a quote, check:

• Who must arrange the insurance: the project owner, the main contractor or you
• Whether the contract names CAR, EAR, both, or just "all risks"
• Whether other parties must be named on the policy, such as the owner, main contractor, subcontractors or a lender
• The minimum third-party liability limit, if one is stated
• How long cover must last, including any testing, commissioning or maintenance period after completion

If the wording is unclear, send it to us and we will help you read it. It is easier to settle this before the work starts than after a loss.

A quick guide by project type

• New building, factory shell, road, bridge, drainage or earthworks: usually CAR
• Installing a production line, boiler, lift, generator set or process plant: usually EAR
• Structural steel erection: usually EAR
• A new factory with building works and a machinery line: both parts apply. The building works sit under CAR and the machinery installation under EAR, often arranged together
• Mechanical and electrical (M&E) fit-out inside a larger project: may already fall under the main contractor's policy, or may need its own cover if you install major equipment as a subcontractor. Ask before you assume
• Extension or renovation of an existing building: usually CAR for the new works, with the existing building covered separately by the owner's property policy. Check how the two fit together
• Solar and similar plant installations: often treated as erection-type work, but it depends on the project and the contract

Three questions that settle most cases

1. Where is most of the value at risk? In the structure being built (CAR) or in the equipment being installed (EAR)?
2. Who owns what while the work is going on? If you are responsible for materials or equipment until handover, that value usually needs to be insured.
3. When does your responsibility end? At practical completion, after testing and commissioning, or after a maintenance period? The policy period should match.

How the sum insured is worked out

For CAR, the sum insured is usually based on the full contract value, including materials and items supplied by the owner if you are responsible for them. For EAR, it is usually based on the value of the equipment being installed plus the installation costs. Transport to site is normally dealt with under marine or goods in transit cover rather than inside the policy.

Under-stating the value to save on cost can lead to a reduced claim if something goes wrong. Declare the real figure and update it if the project value changes.

Policy features that matter more than the name

• Period of insurance: from the start of works to completion, including testing and commissioning where relevant
• Maintenance period: many contracts keep you responsible after handover, so ask whether it can be added
• Third-party liability section: cover for injury or damage to others caused by the works, usually with its own limit
• Parties named: contracts often require the owner, main contractor or financier to be named
• Optional extensions: items such as debris removal, extra professional fees, expediting costs and off-site storage may be available
• Delay in start-up: on larger installations, cover for the income lost when a covered loss delays the start-up may be available as an option
• Excess: the part of each claim you carry yourself

What neither policy usually covers

• Your own equipment, such as excavators and cranes: see our guide to contractors' plant and equipment insurance
• Equipment in transit to site: usually arranged under marine cargo insurance
• Injury to your workers: arranged separately. Some contracts ask for workmen's compensation or similar cover, so check yours
• The cost of fixing faulty design or workmanship itself: usually excluded, although damage that results from it may be covered depending on the wording
• The finished project after handover: see insurance for completed civil engineering projects

What to prepare before you ask for a quote

• The insurance clauses from the contract or tender
• A short project description, site location, start date, expected completion date and any maintenance period
• The contract value, or the value of the equipment to be installed
• The names of any parties that must be on the policy
• Any higher-risk activities, such as piling, deep excavation, work near water, work near existing buildings, heavy lifts or hot work
• For installation projects, a note on testing and commissioning
• A list of subcontractors

Common questions

Can one policy cover both building works and machinery installation?
Often yes. The cover can be arranged so both parts are insured under one project arrangement. Tell us at the start that the project has both elements.

Does a CAR policy cover machinery installation automatically?
Do not assume so. Check that the machinery and its installation are included in the policy wording and the sum insured.

Who pays for the policy, the owner or the contractor?
It depends on the contract. Either side may arrange it, sometimes in joint names.

Is this insurance required by law?
Not as a general rule. It is usually required by the contract, the project owner or a lender, so the requirement comes from your project documents.

Related reading

• Erection all risk insurance explained
• Decoding contractors all risks insurance
• Contractors' plant and equipment insurance
• Engineering insurance in Malaysia

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