As a contractor, it is your prime responsibility to safeguard your capital investment against any losses or damages and ensure the completion of the work within the deadlines. To deal with unforeseen situations, there is a contractors’ all-risk insurance policy which covers risks that may arise during construction. It includes physical loss or damage to property, machinery, and tools brought to the site along with equipment that is temporarily erected on-site as well as a third-party liability that may arise while working at the site. The policy is designed to cover various civil engineering projects like airports, buildings, roads, flyovers, water tanks, sewage treatment plants, etc.
While the policy is meant to give comprehensive coverage, there are some scenarios, when the insurer has all rights to reject your claim under the contractors’ all-risk policy.
1. Fault in design – If the loss or damage occurs because of the faulty design, the insurer is not liable to settle your claim. In this situation, if you would have bought a design defect extension, you could be covered for specific situations.
2. Infringement of laws – The insurer has all rights to reject your claim if a claim arises out of the penalty or non-adherence to government regulations. Also, no coverage will be given if the terms and conditions do not adhere to them.
3. Use of defective items – The insurer can reject the claim if it is found that the losses or damages happen due to using of defective and poor-quality of materials.
4. Negligence – Though, the insurer is legally responsible for compensating you in the case of any loss or damage, your claim can be rejected if the losses or damages happen because of your negligence. It means, the insurer will cover only those losses which happen unintentionally, however, those losses which arise because of your carelessness, will not be covered under the policy. Just because you have a contractors’ all-risk insurance policy, it doesn’t mean you can act carelessly.
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5. Claim is lower than the deductible – A contractor’s all-risk policy is subject to a deductible, which is the amount that an insured will pay from his pocket before the insurer kicks in. For instance, if the claim is Rs 2 lakhs and the deductible is Rs 50,000, the insurer will settle claims only if the losses exceed the deductible limit. In case the loss is Rs 30,000, the same has to be borne by the insured.
6. Claim is related to normal wear and tear – The insurer will reject the claim if it is related to normal wear and tear or depreciation. Even if a claim arises, the insurer will settle the amount after factoring in depreciation. With time, machines and equipment depreciate and therefore, the insurance company considers the value which is computed after deducting depreciation.
7. Cost incurred on correction of faulty design – As stated above, the insurer will reject a claim if it relates to a fault in design, similarly, any expenses incurred on rectification or correction of any error arising during construction, are not covered by the insurer.
8. Fraud – If the insured or employees indulges in fraudulent activity to con the insurer with a fake claim, the insurance company has all rights to reject the claim.
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9. War and invasion – The insurer will not indemnify any loss, damage, or liability, directly or indirectly caused by or arising by war, invasion, civil commotion, martial law, rebellion, revolution, etc.
10. Inventory loss – Those claims which arise due to shortages and unexplained disappearances that were evident at the time of inventory shall be rejected by the insurer.
Just like it is important to know what is covered in a contractor’s all-risk policy, it is equally necessary to know what is not. You don’t want to face a situation when the insurer rejects your claim because it falls under the exclusion list or you infringe any law. So, read the insurance policy document carefully to know when the insurer can reject your policy.
