Undeniably, a construction site is a complex undertaking, and various losses or dangers can arise to disrupt its functioning. Therefore, it makes complete sense to go with a construction all-risk insurance policy that promises to give coverage against various risks and losses. The policy not only covers materials and equipment, but it also deals with an injury caused to a third party. It falls under a property insurance policy which has a fire insurance clause to give coverage in case of losses arise due to fire.
However, there are certain events that are not covered under construction all-risk insurance policies. It is necessary to know what is covered under the policy and what is not.
Construction all risk insurance company can reject your claim with regards to liability that arises due to=
- War, civil, mutiny, civil commotion, etc.
- The willful act of negligence
- Act of terrorism
- Nuclear reaction
- Normal wear and tear
- Property damage or collapse due to faulty design
- Loss or damage of accounts, bills, cheques, debit evidence, etc.
- Penalties that arise due to infringement of terms and conditions
Along with the above, any excess mentioned in the construction of all-risk insurance needs to be paid by the policyholder. The insurer will settle only that amount that is over and above the excess. Further, as per the construction all-risk insurance policy, the policyholder can’t offer, admit or promise indemnity to the third party without the insurer’s approval. In case, the policyholder settles the claim without the insurer’s knowledge, the construction all-risk insurance company can refuse to settle the claim.
Note, the exclusions mentioned above are not exhaustive, and there are other parameters as well which are not covered under the list. So, carefully read the policy document for more information.
Case 1: Exclusions in Construction All-Risk Insurance
Established in 2002, R.S Construction has carved a niche for itself in the construction business. The company has so far successfully completed various construction projects both in India and abroad. Last year, the company bagged a contract of constructing two warehouses of J.S Clothing in Pune.
The construction started in full swing. However, when the first warehouse was under construction, a fire erupted due to short-circuit. And it engulfed the half-constructed warehouse and machinery as well.
As R.S Construction had a construction all-risk insurance policy, the company informed the insurer and asked for the claim settlement. The insurer appointed a surveyor who inspected the site and interviewed the workers. And found that the damage happened due to short-circuit in a machine which was faulty equipment.
It was the responsibility of R.S Construction to ensure that all its machines were working optimally. However, even when one of its workers complained of a defect in the machine, the civil engineer of R.S Construction did not get it repaired. Due to this, the fire occurred.
Read More: What is not covered under Engineering All Risk Insurance?
As the loss happened because R.S Construction acted negligently, the insurer refused to settle the claim.
Case: 2
M.K Construction is in the business for the last ten years and has successfully completed various school buildings and warehouses in Chennai. Though the company always takes precautions during construction; it has bought the constructor’s all-risk insurance policies to get financial coverage in case something mishap occurs at the construction site.
Last year, when the company was constructing a school in Chennai, an earthquake occurred and damaged the construction site. At the time of the accident, one of the officers of the school (which was under construction) was at the site for the inspection, and he also got injured.
As M.K Construction had a construction all-risk insurance policy, it approached the insurer for the claim settlement. The insurer appointed a surveyor who had to visit the site in five days. However, before that, M.K Construction paid compensation to the injured officer as the company was sure that the insurer would repay this amount as well.
The surveyor inspected the site and computed the total loss as Rs 10 lakh. Including compensation to third-party, i.e. officers of the school. However, when the insurer came to know about the compensation given by M.K Construction to the injured officer, the insurer refused to settle the claim.
Read More: What is covered under Engineering All Risk Insurance?
Without informing the construction all risk insurance companies, M.K Construction paid the compensation. Even when the accident happened due to insured peril, the insurer refused to settle the claim with regard to the compensation amount which M.K Construction had paid to the third party.
