Construction All-risk Insurance
A construction all-risk insurance policy is taken by building contractors or developers to cover against the loss or damage caused to the property at their construction site. This policy also covers the contractor’s liability for third-party claims arising from the construction activities. There are various clauses present in the policy document of the construction all-risk insurance policy.
Key Takeaways
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The Time Aggregation Guard: Extreme environmental hazards are bound by a 72 hours occurrence clause, wrapping rolling natural perils like storms or earthquakes into a single deductible event.
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Dual Track Loss Settlement: Claims processing follows clear asset rules: repairing partial damage to restore items to their prior conditions, while total losses are paid out at actual pre-disaster value.
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Proactive Loss Suppression Funding: Minimizing site damage is contractually supported; underwriters cover the cost of refilling the fire extinguishing appliances used to shield property.
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Extended Logistical Expediting Riders: When structural damage threatens deadlines, an express freight clause funds the extra overhead of overtime, night shifts, and public holiday labor.
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Dynamic Co-Contractor Immunity: Large multi-tiered joint ventures can insulate their independent working units by using a cross liability clause to cover diverse entities under one head.
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Geographical Risk Boundaries: Property protection looks beyond the primary fence line; an offsite storage and fabrication clause guards building supplies stored away from the actual site.
Clauses under construction all-risk insurance are mentioned below:
72 hours occurrence clause:
In this clause, the loss or damage caused to the Insured property during any one period of 72 consecutive hours, considers a single event. The cause for loss or damage can be a storm, tempest, flood, or earthquake. However, there should not be any overlapping in any two or more such 72 hours periods occurring over a more extended period.
Basis of loss settlement clause:
According to this clause, the basis of loss settlement will be:
When the damage can be repaired: The loss settlement will be based on the cost of repairs necessary to restore the items to their conditions prior to the damage or loss.
In the event of a total loss: The loss settlement will be based on the actual value of the items immediately before the occurrence of the damage. The loss here covers only the extent, included in the sum insured.
Claim settlement clause under all-risk insurance:
According to this clause, the insurer will settle the claim as soon as he is notified by the insured with a written notification and supporting documents. However, if the insured fails to inform after a stipulated period mentioned in the policy document the claim doesn’t settle.
Cross liability clause:
According to this clause, the third-party liability cover of the policy applies to the insured parties named in the policy document as if a separate policy had been issued to each party. However, there are exclusions to this clause, and hence the insured needs to understand them correctly.
Strike, riot, and civil commotion damage clause:
This clause covers the insured against the loss or damage to the property caused by strike, riot, and civil commotion.
Automatic reinstatement clause in construction all-risk insurance:
According to this clause, the insured will get the full sum. When he is undertaking to pay an additional premium at the agreed rate on the amount of loss calculated on a pro-rata basis. The dates here start from the date of the reinstatement to the expiry of the current period of insurance.
Read More: What is not covered under Engineering All Risk Insurance?
Over time, night work express freight clause:
Covers the insured for the extra charge of overtime, night work, work on public holidays, and express freight caused due to any loss or damage to the items covered under the Policy.
Debris removal clause under all-risk insurance:
According to this clause, the insured gets coverage for the cost of removal of debris, propping or shoring up, demolition, and any temporary repairs. Due to the fire or any other perils as mentioned in the policy document.
Fire extinguishing costs clause in construction all risk:
According to this clause, the insured also covers the cost of refilling the fire extinguishing appliances. The cost directly relates to the use of fire extinguishing appliances for the safety of the insured property.
Insured’s consultant clause:
In the case when the insured pays the agreed extra premium amount, the party liability cover of the policy also applies to the insured’s consultant. As if issued a separate policy for each party.
Notice of cancellation clause:
According to this clause, the Insurer after the provision of a written notice to the insured can terminate the Insurance at any time. The termination becomes effective as per the duration provided by the insurers in the insurance policy.
Payment on account clause:
This clause states that the insured gets his pay for the loss according to the mutually agreed stages between the insured and the insurer. And on the production of an interim report by the Loss Adjuster if any.
Read More: What is covered under Engineering All Risk Insurance?
Transmission and distribution lines exclusion clause in Construction All-risk Insurance
This clause states that the policy does not cover any loss caused to the wire, cables, poles, pylons, standard towers, transmission or distribution of electrical power, telephone or telegraph signal, and communication signals. That does not fall within the specified radius as mentioned in the policy document. This exclusion applies to above as well as below-ground equipment.
Offsite storage and fabrication clause under Construction all-risk Insurance:
This clause states that the construction all-risk insurance policy will cover the loss or damage to materials or goods. Happens when stored anywhere other than the actual site.
Vibration removal or weakening of support clause:
The construction all-risk insurance policy will indemnify the insured for the loss or damage. Caused by vibration or by the removal or weakening of support. Covering the insured, provided that he adheres to the instructions given in the policy document.
Waiver of subrogation clause in construction insurance:
According to this clause, the Insurers can waive all rights of subrogation. Arising out of loss or damage caused by a person using the insured items with the consent of the Insured.
Summary Table: Underwriting Clauses and Operational Triggers in CAR Insurance
| Policy Clause Name | Technical Operational Blueprint | Financial / Payout Mechanism | Risk Transfer Target | Case Study / Scenario Context |
| 72 Hours Occurrence Clause | Aggregates all structural damages occurring within a 72-hour window. | Treats multiple environmental impacts as a single insurance event to apply one deductible. | Limits out-of-pocket costs during prolonged storms, floods, or earthquakes. | A deep depression triggers constant site flooding over a three-day period. |
| Cross Liability Clause | Applies liability coverage to each named entity as if a separate policy had been issued. | Evaluates internal contractor claims independently under a unified contract framework. | Protects joint ventures, prime contractors, and sub-tier partners from mutual lawsuits. | A subcontractor’s vehicle damages a structure erected by the principal builder. |
| Automatic Reinstatement Clause | Restores the master sum insured to its full original face value following a recorded loss. | Computes an additional premium on a pro-rata basis from the loss date to policy expiry. | Prevents site underinsurance for the remaining duration of long-term projects. | A mid-stage project fire drains 30% of the coverage, requiring an immediate limit reset. |
| Fire Extinguishing Costs Clause | Reimburses expenses incurred to deploy tactical emergency flame suppression. | Pays out the exact cost of refilling the fire extinguishing appliances used on site. | Encourages immediate loss mitigation by removing the cost barrier of emergency safety gear. | A circuit spark triggers an extractor fire that a worker smothers using site extinguishers. |
| Payment on Account Clause | Distributes capital injections sequentially during complex structural losses. | Releases project cash injections based on mutually agreed stages and interim reports. | Sustains contractor cash flow to prevent complete project stoppage during months of loss adjustments. | A massive structural collapse requires an extensive, year-long repair program. |
| Transmission Lines Exclusion | Enforces a strict boundary around overhead and underground distribution utilities. | Restricts coverage if wires, cables, poles, or towers sit outside a specified site radius. | Banned risk class; separates standard building lines from massive public utility networks. | An off-site grid cable shorts out a mile away from the principal building gate. |
Case Study: Clauses under construction all-risk insurance
Rajesh, an owner of a construction company purchased a construction all-risk insurance policy. In order to protect his construction sites against any losses caused due to various perils. While construction work was going on on one of his sites, a fire broke out in one of the electrical circuits. Immediately extinguished the fire with the prudent efforts of a nearby worker, causing no further harm.
Rajesh notified his insurance company about the scenario. Since Rajesh had a fire extinguishing costs clause included in his policy, it indemnified him for the cost of refilling the fire extinguisher as they used it to extinguish the fire. Since using the appliance to safeguard the insured property, it indemnified Rajesh for the cost of refilling.
Frequently Asked Questions (FAQs)
1. What is the function of a 72 hours occurrence clause in a contractors’ all risk policy?
A) The 72 hours occurrence clause is a standard property underwriting tool used to manage claims caused by volatile natural perils. It mandates that all physical damage sustained by a construction site from a storm, flood, or earthquake within 72 consecutive hours considers a single event. This prevents contractors from facing multiple individual deductibles for damage caused by a single, rolling environmental system.
2. How does the cross liability clause function when multiple contractors work on the same site?
A) Large civil developments involve principal developers, general contractors, and numerous sub-tier vendors working closely together. The cross liability clause ensures that the third-party liability section applies to each named insured as if a separate policy had been issued to each party. This allows one insured entity to file a claim against another co-insured entity under the same master policy framework if operational accidents occur.
3. What is an automatic reinstatement clause in construction all risk insurance?
A) When an insurer pays out a major claim for an on-site disaster, the policy’s master sum insured is reduced by that exact loss amount. The automatic reinstatement clause dynamically restores the coverage limits to their full face value. To activate this, the developer must pay an additional premium calculated on a pro-rata basis from the date of the asset restoration until the policy’s final expiration date.
4. Will a CAR insurance policy reimburse the costs of refilling fire extinguishers after an accident?
A) Yes, provided the policy features a fire extinguishing costs clause. Underwriters recognize that rapid on-site action prevents catastrophic structural losses. Therefore, if a worker uses emergency equipment to put out a blaze, the insurer will fully cover the cost of refilling the fire extinguishing appliances, as long as they were deployed to protect the insured property.
5. How does the payment on account clause assist builders during a catastrophic property loss?
A) When a massive structural failure or flood hits a project, completing a full forensic loss adjustment can take months. The payment on account clause prevents the contractor from facing severe cash flow issues or bankruptcy during this period. It allows the underwriter to release claim funds in mutually agreed stages based on interim reports by the loss adjuster, keeping the project moving.
6. What is the transmission and distribution lines exclusion clause in a construction policy?
A) This provision sets a strict boundary around a policy’s utility liability. The clause dictates that the policy does not cover any loss caused to wires, cables, poles, pylons, and standard towers used for electrical power or communication transmission. These assets are excluded unless they sit within the specified radius of the main job site, as public utility networks carry a much higher risk profile than standard building projects.
About The Author
Shivani
MBA Insurance and Risk
She has a passion for property insurance and a wealth of experience in the field, Shivani has been a valuable contributor to SecureNow for the past six years. As a seasoned writer, they specialize in crafting insightful articles and engaging blogs that educate and inform readers about the intricacies of property insurance. She brings a unique blend of expertise and practical knowledge to their writing, drawing from her extensive background in the insurance industry. Having worked in various capacities within the sector, she deeply understands the challenges and opportunities facing property owners and insurers alike.
