Construction all risk insurance policy is purchased by building contractors or developers for getting a shield against various losses or damages which may arise at their construction site. The policy also offers coverage for third-party liabilities which may arise during construction business. There are various clauses which are present in construction all risk insurance policy, and it is essential to have the complete knowledge about these clauses to make the best use of them. So, let’s discuss some of the clauses in detail:
1.72 hours Occurrence Clause:
As per this clause, any loss or damage caused to the insured property during any one period of 72 consecutive hours, would be considered as the single incident. Here, the loss or damage can be due to natural disasters like flood, earthquake, storm, etc. Note, there should be no overlapping of any two or more events during the period of 72 hours.
2.Basis of Loss Settlement Clause:
The clause has defined the basis of loss settlement, which is as follows:
- When it is feasible to repair damages: Here, the loss settlement would depend on the cost of repairs incurred towards restoring the items to their conditions before the loss or damage.
- When there is a total loss: Here the loss settlement would depend on the actual value of the items which was immediately before the loss or damage occur. Note, the insurer will cover loss only to the extent it is included in the coverage limit of the policy.
Key Takeaways
-
Understanding Special Policy Clauses: CAR insurance contains critical contractual clauses and policy endorsements that define how losses are calculated, settled, and extended across multiple project stakeholders.
-
Streamlined Natural Catastrophe Claims: The 72-Hours Occurrence Clause ensures that natural disasters spanning up to 3 days are treated as a single claim, safeguarding contractors from paying multiple deductibles.
-
Comprehensive Subcontractor & Consultant Protection: Through Cross Liability and Insured’s Consultant clauses, all working entities—including contractors, subcontractors, and design consultants—receive individual third-party liability protection under a single master policy.
-
Reinstatement of Sum Insured Post-Claim: The Automatic Reinstatement Clause allows contractors to replenish their coverage limit after an interim loss, ensuring the remaining contract period stays fully insured.
-
Expedited Recovery & Expense Cover: Financial endorsements like Express Freight & Overtime, Debris Removal, and Fire Extinguishing Costs cover essential emergency expenses, allowing builders to resume site operations faster.
3. Claim Settlement Clause:
The clause says that the construction all risk insurance will settle the claim as soon as it is notified by the insurer along with supporting documents. However, the claim would not be settled if the policyholder would fail to inform after a stipulated time duration as specified in the policy document.
4.Cross Liability Clause:
As per the clause, the insurer would extend third-party liability cover of the policy to other insured parties, as mentioned in the policy document, in the same manner as if a separate policy was issued to each party. However, there are certain exclusions which are applicable here and hence, it is necessary for the policyholder to understand them thoroughly.
5.Strike, Riot and Civil Commotion Damage Clause:
The clause offers the coverage to the policyholder against losses or damages which may arise due to strike, riot and civil commotion.
6.Automatic Reinstatement Clause:
As per the clause, the policyholder will get the full sum insured if he/she agrees to pay an additional premium at the agreed rate on the amount of loss, computed on the pro rata basis.
7.Overtime, Night Work Express Freight Clause:
The policyholder would be covered for the extra charge of night work, overtime, work on public holidays, and express freight.
9.Debris Removal Clause:
As per this clause, the construction all risk insurance company would cover the policyholder against the cost of debris removal, propping or shoring up, demolition and any temporary repairs which are caused due to fire and other perils as stated in the policy document.
Read more: Construction All Risk (CAR) Insurance Policy
10.Fire Extinguishing Costs Clause:
The clause says that the policyholder would be covered for the cost of refilling the fire extinguishing appliances, provided the fire extinguishing appliances were used towards the safety of the insured property.
11.Waiver of Subrogation Clause:
The clause allows the construction all risk insurance company to waive off all rights of subrogation, which may arise out of loss or damage caused by the person who used the insured items with the approval of the policyholder.
12.Insured’s Consultant Clause:
In the case where the policyholder has paid the extra premium, the third-party liability coverage under the policy would also be applied to the insured’s consultant as if a separate policy was issued to each party.
13.Notice of Cancellation Clause:
This clause allows the construction all risk insurance company to terminate the policy at any point in time after giving the written notice to the policyholder. Here, the termination would become effective in accordance with the duration specified by the insurer in the policy document.
14.Payment on Account Clause:
According to the clause, the policyholder would be paid for the loss as per the mutually agreed conditions between the insurer and the insured. Further, the insurer would also consider the interim report of the Loss Adjuster if any, at the time of claim settlement.
Summary Table: Key Clauses & Endorsements in CAR Insurance
Also read: What Makes Construction Risk Imperative Part Construction Business
14.Transmission and Distribution Lines Exclusion Clause:
The clause clearly mentions that construction all risk insurance policy would not cover loss or damage caused to the cables, wire, poles, pylons, standard towers, transmission or distribution of electrical power, telephone or telegraph signal and communication signals which do not come under the purview of the insurance policy document. Note, the exclusion would be applicable on both the above and below the ground equipment.
Frequently Asked Questions (FAQs)
1. What is the 72-Hours Occurrence Clause in Construction All Risk (CAR) insurance?
A) The 72-Hours Occurrence Clause treats all loss or damage caused by a natural peril (such as a flood, storm, or earthquake) within a continuous 72-hour timeframe as a single single insurance event. This prevents the insured from being charged separate deductibles for continuous natural disaster damage.
2. How does the Cross Liability Clause protect multiple parties on a construction site?
A) The Cross Liability Clause extends third-party liability coverage under a CAR policy to cover each named insured (such as the principal owner, main contractor, and subcontractors) as if a separate policy had been issued to each. It ensures coverage if one insured party accidentally causes damage or injury to another party on the same project.
3. What is the purpose of the Automatic Reinstatement Clause in CAR policies?
A) When a claim is paid out under a CAR policy, the total Sum Insured is reduced by the claim amount. The Automatic Reinstatement Clause restores the original Sum Insured for the remainder of the policy term, provided the contractor pays a pro-rata additional premium on the settled loss amount.
4. Why is a Waiver of Subrogation clause important in construction insurance contracts?
A) A Waiver of Subrogation clause prevents the insurance company from suing third parties (such as subcontractors or site engineers using equipment with permission) to recover paid claim costs. This clause maintains harmonious working relationships among all parties involved in the construction project.
5. What expenses are covered under the Debris Removal and Express Freight clauses in CAR insurance?
A) The Debris Removal Clause covers the costs of clearing site wreckage, demolition, propping, and shoring up damaged structures following an insured event. The Express Freight and Overtime Clause covers extra costs for night shifts, holiday labor, and rapid air freight required to deliver replacement machinery components quickly to minimize project delays.
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.
