A construction project is a complex and demanding undertaking that requires planning and co-ordination at so many levels. The project requires getting legal clearances and arrangement of resources, labour, construction material and requisite equipment’s. But despite all this organization, things can go wrong and the chance of risk cannot be undermined, which is why most contractors and builders opt for a construction all risk insurance scheme.
As a building contractor, you have made a sound capital investment in a project. It IS therefore becomes imperative to take an optimum cover to protect your investment against any kind of risk, loss and damage. The policy is typically divided into two sections.
It essentially deals with material damage and covers the physical loss or damage of property during the construction phase.
On the other hand, section II deals with any loss, damage or bodily injury caused to a third party and extend cover against all this.
From the sound of it, constructional all risk insurance appears to be comprehensive liability insurance policy, but you must be mindful of the exclusions under the same. Generally, exclusions comes under the purview of add on features of a policy; however there are certain elements that are categorically excluded. Let’s understand some of the key exclusions that you should be aware of before taking construction all risk insurance –
The insurer can reject claims with respect to any loss, damage, liability arising out of –
- War, civil war, rebellion, revolution, insurrection, mutiny, civil commotion, conspiracy, insurrection, civil commotion etc.
- Radioactive contamination, nuclear reaction and nuclear radiation
- Cessation of work
- Willful act of negligence
- Act of terrorism
Besides the above list of general exclusion there are other exclusions under the two sections of the policy.
Exclusions under Section I – Material Loss
Under section I of the policy, the insurer is not liable to pay for the following scenarios –
- Losses arising due to excess shown in the schedule
- Losses that are known at the time of taking down the inventory
- Normal wear & tear
- Gradual deterioration (rusting, scratching) or damage caused for atmospheric conditions
- Damage or collapse of property due to faulty design
- Damage or collapse of the building because repair, aesthetic rectification, restoration efforts
- Damage of the building or construction because of the use of defective or poor quality material
- Loss or damage of files, drawings, accounts, bills, money, stamps, cheques, evidence of debt etc.
- Penalties arising due to non-compliance of law, non –fulfillment of terms & condition of the project
- Consequential damages & losses etc.
Exclusions under Section II- Third Party Liability
Under Section II of construction all risk insurance, the insurer is not obliged to pay indemnity for the following scenarios –
- The Excess mentioned in the policy Schedule as it should be borne by the policyholder in the event of property damage.
- Expenses incurred by the insured in repairing or replacing anything covered under Section I of this Policy.
Condition applicable to Section II
Under no circumstances, the insured (principal contractor, sub-contractor, owner of the property or the party funding the project) can admit, offer or promise the payment of indemnity to the third-party without the consent of the insurer. All matters related to defense and settlement must be carried out in knowledge of the insurance company. This is imperative for a hassle free claim settlement process.
Add on Cover
Any discussion on exclusion of an insurance policy cannot be complete without a mention of add on cover. Also known as extension, add on covers are additional benefits that can be procured by the insured on payment of the extra premium. Under construction all risk insurance; the following extensions are available –
- The cost of removal of debris
- Liability arising due to the loss of damage of surrounding property
- Any kind of cross Liability
- Loss of property due to strike, civil commotion & Terrorism
- Any kind of extended maintenance work
- Loss of damage due to rectification or restoration work
- Loss or damage of property due to earthquake and terrorism
The exclusion mentioned in this write-up is not an exhaustive list. For a detailed understanding, you must consult the insurer. As it is important to know what is included in the policy, it is equally equivalent to understand what is not. Construction projects are capital intensive undertaking and therefore contractors or those involved with the project must take comprehensive coverage that gives them maximum protection in case of unforeseen circumstances. However, to make the most out of the policy, it is imperative to understand what is not included in the policy so that at the time of claim, the insurer doesn’t reject your claim because you were not aware of the exclusion while taking the policy. Therefore, it is better to be prepared for all contingencies and being aware of the ins and outs of your policy is crucial for that.