Yes, the construction all risk insurance policy covers damage to surrounding structures as well. Loss or damages to property which are located on or adjacent to the construction site, belong or held in custody or control of the policyholder shall be covered if the loss/damage occurs directly due to those construction items which are insured under Section 1 and it happens during the policy tenure. Here, it is important to note that this cover would not apply to the construction, plant, equipment, and erection machinery. So, Does the Construction All Risk Policy covers damage to surrounding structures?
Key Takeaways
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Add-On Requirement: Surrounding property coverage is typically not automatic in a standard Contractor All Risk policy; it must be opted for as an endorsement by paying an additional premium.
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Direct Causal Link Required: Losses to adjacent properties are only payable if they directly result from an insured construction peril (e.g., fire, vibration, or structural collapse) occurring under Section 1 of the policy.
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Independent Sum Insured: A separate limit of indemnity must be declared for surrounding property (e.g., ₹10 Lakhs) apart from the main project’s total Sum Insured (e.g., ₹50 Lakhs).
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Specific Policy Deductibles: Claims filed for surrounding property damages are subject to dedicated policy excesses that the insured must absorb out-of-pocket per incident.
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Exclusion of Site Machinery: Construction equipment, heavy machinery, and temporary site structures do not fall under the “surrounding property” endorsement and must be covered under their respective policy sections.
Further, it is necessary to note that most of the construction all risk insurance policy covers surrounding structures as an add-on. It means you would have to pay an extra premium to get the coverage for the specified surrounding property. Also, if you cover the surrounding structure under the policy, the excess clause would apply to the policy as well. It means, that if the excess limit is, say, Rs 30,000, then the losses up to Rs 30,000 would have to be borne by the insured, and the insurer would pay the rest of the claim.
Also, a separate principle for surrounding property has to be defined in the policy document.
Case of Construction All Risk Policy cover
Since 1999, R.S Construction has become a renowned name in the construction industry. Backed with years of experience and expertise, the company has so far completed various projects both in India and abroad. The company takes every measure in ensuring the safety of its business activities. The company has also purchased a construction all-risk insurance policy to get coverage in case of any mishappening at its construction site.
Last year, R.S Construction got a big contract for constructing a school building in Pune. The school site was near the warehouse of R.S Construction, and therefore, the company was hopeful to complete the construction work without any issue.
Though the civil engineers and workers there were taking every step to ensure safety at the site. A fire erupted there due to short-circuit. Soon, the fire spread and caught the warehouse as well. Workers at the site immediately called the police and fire brigade. However, by the time they reached the spot, it damaged a major part of the construction site and warehouse.
Thankfully, no worker was injured, however, the loss/damage to both the construction site and warehouse was substantial enough to approach a construction all-risk insurance company.
Read More: What does the 72-hour clause signify in the construction all-risk policy?
In this case, R.S Construction bought a construction all-risk insurance policy. In order to get coverage against loss or damage that may arise while discharging construction activities.
Also, R.S Construction had paid an extra premium to get coverage for its surrounding structure as well. It means, if a loss or damage happens to the surrounding site due to any of the construction items, insured under Section 1 of the construction all-risk insurance policy, the insurer would also settle it.
In the above case, though, the damage happened at the construction site where R.S Construction was building a school. Its warehouse, situated adjacent, also caught fire due to the construction, covered under the policy. Also, it happened due to fire, the peril insured under construction all-risk insurance policy.
Summary Table: Surrounding Property Coverage in CAR Insurance
Read More: What is 50:50 Clause in Construction All Risk Insurance Policy?
For the surrounding structure, a separate sum insured as defined in the construction all-risk insurance was Rs 10 lakh. It means, while the construction all-risk insurance policy offered the coverage of Rs 50 lakh, a separate Rs 10 lakh coverage was also available for the surrounding structure.
R.S Construction submitted a duly filled insurance claim form along with the details of the complete account of the accident. The insurer reviewed the claim and settled it accordingly.
If R.S Construction did not pay extra to get coverage for the surrounding property, it would have to bear the damages caused to the surrounding structure itself.
Frequently Asked Questions (FAQs)
1. Does a Contractor All Risk (CAR) policy automatically cover damage to surrounding property?
A) No. In most standard CAR insurance policies, damage to surrounding structures owned by or in the custody of the insured is available as an add-on endorsement requiring an additional premium. Without this endorsement, adjacent property losses must be borne out-of-pocket.
2. What qualifies as “surrounding property” under a CAR insurance endorsement?
A) Surrounding property refers to existing structures, buildings, or land located on, under, or adjacent to the construction site that belong to or are in the care, custody, or control of the policyholder.
3. How is the Sum Insured calculated for surrounding structures in CAR insurance?
A) A distinct Sum Insured must be specified for surrounding property in the policy schedule. This limit operates independently from the main contract work’s Sum Insured, establishing a dedicated payout ceiling for adjacent damages.
4. Are construction machinery and equipment covered under the surrounding property clause?
A) No. Construction plant, heavy equipment, tools, and erection machinery are explicitly excluded from the surrounding property clause. These assets must be insured under the Contractor’s Plant and Machinery (CPM) cover or separate equipment riders.
5. How do policy deductibles apply to surrounding property damage claims?
A) Claims filed under the surrounding property endorsement are subject to a specific policy excess (deductible). The policyholder is responsible for paying losses up to this threshold, after which the insurer reimburses the remaining amount up to the agreed limit.
About The Author
Pankaj
MBA Insurance and Risk
With seven years of expertise in the insurance sector, Pankaj is a seasoned authority in Construction All Risk (CAR) insurance. As a dedicated contributor to SecureNow’s blog and article platform, they adeptly unpack the intricacies of CAR policies. He is deeply committed to empowering construction professionals with comprehensive insights into risk mitigation and coverage nuances. Their proficiency in navigating insurance landscapes ensures readers receive current and actionable guidance. Pankaj‘s passion for fostering understanding and resilience within the construction industry has firmly established them as a trusted source of knowledge and support.
