Construction all-risk insurance policy covers the insured against the loss or damage to the construction site. A contractor can face some significant financial loss in case of such events and hence, having a policy can help him in the smooth functioning of the construction process.
Construction all risk insurance policy covers the contractor in the following two cases:
- Material damage
- Third-party liability
Material damage coverage means that the insured will be covered against the losses or damages or destruction to the property that is insured.
Insurable objects in material damage:
The coverage for the material damage of the insurable objects is applicable for:
- All the construction, installation, reconstruction, repairs, assembly, and demolition works.
- All the construction materials, assembled equipment, building machinery, building tools, and fittings of the construction site. Such items are located at the insurance location and are used for performing the construction work.
Construction all-risk insurance policy covers material damage and also covers the clean-up costs arising from the damage to the property. The clean-up costs are the costs for demolishing, collecting, packing, removing, and utilizing the remains of the insurable object. The material damage is covered only for the objects that are covered and mentioned in the construction all-risk insurance policy.
An insurable event in material damage:
A material damage insurance event occurs when there is damage, destruction, or loss to the insurable object due to any sudden or unforeseen event.
Such damage is covered only when the event is not excluded as per the insurance policy or when such an event has been agreed upon by a special condition between the insured and the insurer and is mentioned in the policy document.
Also, in case of material damage, the construction all-risk insurance policy also mentions some exclusions for which the insurers do not provide any coverage to the contractors. Such exclusions are:
- Any material damage caused due to negligence with respect to construction design, norms, or intentional violation of the construction technology.
- Material damage caused due to the full or partial stopping of the construction work.
- Material damage caused due to faulty design.
- Any material damage caused due to defects in the construction materials or equipment, for which the manufacturer, importer, or retailer is responsible.
- Material damage is caused due to defective material or defective workmanship.
- Incorrect use of equipment or construction materials for other than their intended purpose.
Case Study:
D.G construction company located in Faridabad was building a commercial complex for one of its clients. It was a huge project for the company, and the construction work was going on in full swing.
One day, one of its ‘Hydraulic Concrete Mixers’ caught fire due to a short circuit. All the workers tried to extinguish the flames as early as possible. Although no one was physically hurt, the machine got completely burnt and damaged.
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Since the ‘Hydraulic Concrete Mixer’ was damaged beyond any repairs, it cost the company a total loss of rupees two lakhs. The D.G construction company immediately contacted its insurance company. A surveyor was appointed by the insurance company to determine the cause of the fire and the extent of the loss.
Upon investigation, it was found that the reason for the total damage to the machinery was indeed the fire caused due to the short circuit. The damage was found to be beyond repairs and hence the insurers agreed to cover the loss suffered by the construction company. The event of the loss was covered under the ‘material damage’ section of the policy as the damage was caused to one of the machinery which was used in the construction process. Also, this machinery was covered under the insurable object under the material damage section of the policy.
The construction company submitted all the required documents to the insurers and the insurers settled the claim after accounting for the depreciation of the machinery.
