Contractors' All Risks (CAR) Insurance: Definition and Example
Contractors' all risks (CAR) insurance is a non-standard insurance policy that covers property damage as well as third-party injury or damage claims, which are the two most common categories of hazards on construction projects.
Property damage can occur as a result of incorrect structure construction, rehabilitation damage, or damage to temporary work created on-site.
While working on the building site, third parties, especially subcontractors, may be hurt. CAR insurance not only covers those linked risks, but it also combines these two types of risks into a single policy that bridges the gap between exclusions that would otherwise exist if separate policies were used.
CAR insurance is commonly used for building, water tank, sewage treatment plans, flyovers, and airport construction projects.
Understanding CAR Insurance
CAR insurance coverage is typically purchased jointly by the contractor and the company. Other parties, such as financial corporations, can be named to the policy. Because the policy covers many parties, each has the ability to pursue a claim against the insurer. All parties must notify the insurer of any injuries or damages that may result in a claim.
A CAR insurance policy's purpose is to ensure that all parties on a project are covered, regardless of the type of property damage or who caused the harm.
Subrogation rights are forfeited by insurers who underwrite this type of coverage. That is, if an insurance company pays out cash to one party under a contract, it cannot seek to collect those amounts from another party under the same contract.
For example, if the owner of a major structure and the contractor working on the building are both covered by the same CAR insurance, the building owner can recover any losses caused by the contractor when a claim is submitted. The insurer, on the other hand, cannot seek reimbursement from the contractor.
A CAR insurance policy will also cover property losses or damages caused by fire.
Extending CAR Coverage
CAR coverage can be expanded to include manufacturers, suppliers, contractors, and subcontractors.
The policy can also be expanded to include the following occurrences:
- Extra customs duty
- Air cargo
- Damage to surrounding property
- Debris removal
- Earthquake
- Escalation
- Loss due to breakage of glass
- Maintenance visits
Furthermore, CAR plans may be structured to cover losses incurred when starting up is delayed due to another covered loss. For example, if a structure is destroyed and covered by CAR insurance, losses incurred as a result of a delay in opening the property while the damage is repaired may be compensated as well.
CAR plans can also be expanded to contain an escalation provision, cover terrorist acts, and cover excess third-party liability, among other less typical eventualities.
The Bottom Line
Construction projects pose several financial risks due to property damage and third-party injuries. Contractors' all risk insurance is a non-standard insurance policy that covers these risks when they are caused by things like fire, flood, wind, earthquakes, and construction flaws on the job site.
A CAR policy should be considered by contractors hired to oversee a construction project. Knowing you're secured against financial claims for property damage and injuries can build confidence and provide peace of mind throughout the duration of a project.