Construction all risk insurance policy offers to cover the assets and liabilities of the contractor during the construction work. The policy is arranged to cover the assets like materials, tools, plant and equipment from any loss or damage. It also covers the contractor against the liability arising from undertaking the construction work and causing injury or damage to the third-party.
This construction all risk insurance policy requires various declarations to be made by the contractor based on the policy that he undertakes. Following are the declaration clauses based on the policy type:
1) Declaration based on ‘declared and listed contract’ basis:
A contractor is required to declare every contract that he undertakes before its commencement to the insurance company. Otherwise, that particular contract is not insured in his construction all risk insurance policy.
The insured is required to provide the estimate of work that he will be undertaking in the next 12 months. The total value of the estimate is calculated by considering the value of each contract plus the value of any materials supplied by others.
The insurers decide the premium based on the estimate of the contracts that the contractor provides. All the projects undertaken are required to be declared and are thus listed in the schedule of the construction all risk insurance policy. If the insured value increase beyond the estimate, an additional premium is required to be paid by the contractor.
2) Declaration based on the ‘annual turnover’ basis:
According to this declaration clause, the insured is required to declare the estimate of the payment that he will receive for the work carried out during the next 12 months. The value of the materials supplied by others also needs to be declared. This policy based on the declaration on annual turnover basis is suitable for the contractors;
- Who do not want to go through the hassle of remembering to declare every contract
- Who do many jobs each year
- Who undertake lot of work as sub-contractor
The insurance cover will expire at the earliest of the following three options:
- Upon completion of the work/construction
- At the end of your maximum construction period
- On the expiry of the policy
3) Declaration based on contract commencement basis:
Declarations for the policy based on contract commencement basis, requires the insured to declare the estimate of the total value of all contracts that he will commence during the 12 months. These estimates include the total contract value, plus the cost of materials supplied by others. The premium is decided based on the estimate provided by the contractor. Each contract is then insured until (earliest of the two):
- Upon completion of the work
- At the end of your Maximum Construction Period
‘Arcade Construction Company’ was located in Delhi and was well-known for undertaking huge construction projects. Being in the industry for a long time and known for its excellent work, the company got many construction projects every year. These projects included residential as well as commercial projects. Due to the massive numbers of the projects that the company had, it had taken a construction all risk insurance policy to cover against any loss or damage to the equipment and to protect against any third-party liability.
In the year 2011, the company had six ongoing construction projects being carried on at different locations. All these projects were covered by the insurance policy that the company had.
At the end of the financial year, the company bagged another small project of building a garage for a residential property owner. The company began with the construction. However, the roof of the garage collapsed during the construction and caused damage to the vehicle of the property owner.
As this contract was not declared in the construction all risk insurance policy of the company, they did not get any benefit of this policy. The policy required to declare all the contracts that the company is undertaking in the particular year, even if it was a small contract.
Failure of the construction company to declare the contract of garage building for the residential property led to unsuccessful claim settlement. The company had to bear all the damage caused to the vehicle.