building the right contract
Property Casualty

Let’s Talk about CAR Insurance, or Contractors All Risk

Joe Watts
Joe Watts
Property Casualty

I know what you’re thinking — that I’m going to start talking about what kind of policy you should think about putting on your Honda Pilot, Ford Explorer, Chrysler Town & Country, Buick LaCrosse, or whatever kind of vehicle you may have housed in your two-or-three-stall garage. Well, not exactly.

The type of CAR insurance I’m talking about is “Contractors All Risk” insurance. I know. Completely different. Not even in the same realm of thought. But just as important!

If you’re a contractor doing work in another country, it’s crucial to have Contractors All Risk (CAR) insurance in place before a stake goes in the ground. Why?

Well, many things can go wrong on a construction project — from excavation and foundation to the actual construction itself. Even materials can be stolen. What if your local (foreign) subcontractor decides to stop working on the project? Would that cause a delay in project completion or a loss in productivity? Sure people would get upset, but what happens when there is a suit for damages?

CAR insurance (also known as Contract Works) is common and written in connection with construction projects outside the U.S.

Short and sweet, CAR insurance will provide compensation for losses due to physical damage suffered by the insured. Most often, the insured named on the policy will be both the construction contractor and the owner of the project and can also include general contractors, subcontractors, suppliers, and design professionals.

3 Parts of Contractors All Risk Insurance

For CAR insurance, there’s not a standard policy; however, a policy generally contains three coverage parts (reference to the actual policy form is required to determine insurance coverage provisions):

Part I — Material Damage

This coverage part is comparable in certain respects by providing coverage for unexpected damages during the course of development or construction. Some elements covered:

    • Preliminary work, professional fees, temporary buildings, materials and stock stored at the job site, transit costs, and Value Added Tax (VAT)
    • Materials supplied by the owner
    • Heavy equipment and supporting equipment, including construction plant and machinery (Hired in Plant Insurance)
    • Debris removal
    • Testing and commissioning

Part II — Third Party Liability

Some elements covered:

  • Bodily injury and property damage of others due to unexpected and unintentional events
  • Legal costs

Part III — Delay in Start Up (DSU)

This coverage results from covered property damage. Some elements covered:

    • Income loss
    • Additional expense incurred due to delay
    • Additional interest charges and advertising expenses
    • Delayed opening cover, soft costs, and Advance Loss of Profits (ALOP)

Although it’s easy to associate CAR insurance with builder’s risk or property coverage, it’s much more by offering first-party coverage, third-party coverage, and time element damages to multiple interested parties.

OK, that was a lot of info. So, after all of that, I want to end with some trivia!

Question: When was the first CAR policy written?

Answer: In the 1920s to cover construction of a bridge over the Thames River in London. But, the real development of this specialized type of insurance coverage came during the reconstruction of Europe after World War II. Pretty interesting!

Now for your questions. What questions do you have for me or our team here at Holmes Murphy? How can we help you understand this more? Are you questioning whether you need this? What are your concerns? Let us know by commenting below!

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