• Damage to ongoing works – e.g. damage to partially completed buildings due to fire, flood, theft, or vandalism. 

• Contractor’s tools and equipment – including hired-in plant and machinery. 

• Temporary buildings – such as site offices and storage units. 

• Third-party property damage – where part of the contract involves work affecting adjacent property. 

• Public liability (often included or bundled) – for injury or damage to third parties. 

 

Despite its broad coverage, construction all risk insurance is not without some potential issues and risks of its own: 

 

CAR insurance can be highly technical and varies between insurers. Ambiguities in contract clauses or unclear definitions (e.g., what qualifies as “contract works”) can lead to disputes at claim time. Another example given by a well-known insurance expert is the case of a piece of plant, covered by CAR. The kit was lost in a flood, trapped in an airlock in a cave. Though it was impossible to retrieve the plant, as the flooded area could not be saved, the plant itself was not actually damaged. As a result, it was not covered by the policy, despite the loss! 

 

Sometimes, what’s required under the construction contract is not fully mirrored in the insurance policy. This often happens regarding joint names, limits, or exclusions. As noted above, the JCT has specific insurance requirements. If those are not met, there is the potential that the contractor could be in breach of contract. A good example of this might be the fit-out of a part or floor of a building. The JCT often stipulates that ‘existing structures’ should be insured. Yet, it would arguably be disproportionate to expect a contractor to ensure a high-rise building if fitting out just one or part of one floor of that building. 

 

Policies often exclude certain risks such as faulty workmanship, design defects, or wear and tear. These exclusions can come as a surprise unless carefully reviewed. The importance of getting good advice from your legal team and an experienced broker should not be underestimated. 

 

Assessing loss and attributing liability (especially in multi-party projects) can be complex and lead to delays in receiving payment. As anyone involved in construction knows all too well, cashflow is ‘the lifeblood of the industry’. Therefore, delays to cashflow could prove catastrophic to business operations. 

 

Multiple policies (e.g., CAR, professional indemnity, public liability) can cause confusion over which one responds in a loss, increasing the risk of disputes between insurers. A recent case in the High Court examined the challenges that such a scenario can create. 

 

Construction all risks insurance is essential for protecting construction works in progress. But it is not a “catch-all” solution. For contractors and developers, it’s crucial to understand the scope, limits, and exclusions of your CAR policy. Ensuring it aligns with contract requirements is critical. Legal and insurance advice during the tender and contract phases can help avoid costly surprises down the line. Should you need any help or advice on arranging the correct level of cover, please get in touch with one of the team today.