Contractor All Risk Insurance: What It Covers and Why

A building under construction is at its most vulnerable: partially complete, often unenclosed, surrounded by heavy plant and temporary structures, and exposed to weather. Contractor all risk insurance, usually shortened to CAR, is the policy designed for that period. It protects the works themselves against accidental loss or damage and, in most policies, covers liability to third parties arising from the construction.

This article explains how a typical CAR policy is structured, what it usually covers and excludes, who arranges it under common contract forms, and where engineering issues meet insurance. Policy wordings vary considerably between insurers, so this is a general guide and not insurance or legal advice.

What contractor all risk insurance is for

The underlying problem is simple. Until a building is handed over, damage to the works is usually the contractor’s responsibility to make good, often at its own cost. A storm that floods a basement, a fire in a store of materials, or a collapse of formwork during a pour can destroy weeks of work. Without insurance, a single event could exceed the contractor’s profit on the whole project or threaten its solvency, which in turn puts the owner’s project at risk.

A CAR policy transfers much of that risk to an insurer. It is usually written for the duration of the construction period, often extended to cover a maintenance or defects period, and it typically names the owner, the main contractor and subcontractors as insured parties for their respective interests. That joint cover reduces the likelihood of parties suing each other over insured damage.

Section I: material damage to the works

The first part of most policies covers physical loss of or damage to the contract works from an accidental cause not otherwise excluded. In practice it usually extends to:

The permanent works under construction, including materials delivered to site for incorporation.
Temporary works such as formwork and falsework, where included in the sum insured.
Construction plant and equipment, if specifically declared.
Debris removal after an insured loss, usually subject to a separate limit.
Existing property owned by the employer, sometimes, by extension and for an agreed limit.

The sum insured is normally based on the full contract value, so that a total loss could be rebuilt. Some policies include automatic adjustment if the final contract sum exceeds the estimate. Under-insurance can reduce a claim payment proportionately, so the declared value deserves the same care as any other contract figure.

Section II: third-party liability

The second part covers the insured parties’ legal liability for accidental bodily injury to third parties and damage to third-party property arising from the works. Examples include damage to a neighbouring building caused by vibration or ground movement, injury to a member of the public from a falling object, or damage to underground services during excavation.

Liability cover is usually subject to a limit per occurrence and may carry specific conditions or exclusions for vibration, removal or weakening of support, which are precisely the risks that arise in deep excavation and piling near existing structures. Where a project involves basement works close to neighbours, the insurer may ask for pre-construction condition surveys, monitoring and an engineer’s assessment before agreeing to cover that risk.

Injury to the contractor’s own employees is normally excluded from Section II. In Singapore it falls under the Work Injury Compensation Act and the separate compulsory work injury compensation insurance that employers must hold for the categories of employee the Act specifies.

Common exclusions and deductibles

A CAR policy is not a guarantee against every misfortune. Typical exclusions include:

Faulty design, materials or workmanship — the cost of correcting the defective element itself is often excluded, although resulting damage to other parts of the works may be covered depending on the clause chosen. Insurers offer different levels of defects cover, so the wording matters.
Wear and tear, gradual deterioration and corrosion.
Consequential loss, such as delay penalties or loss of rent, unless specifically insured under an advance loss of profits extension.
War, terrorism and nuclear risks, subject to market wording.
Mechanical or electrical breakdown of plant, which is usually a separate machinery policy.

Each claim is also subject to a deductible, which is often higher for natural perils or for particular activities such as tunnelling. Contractors should know who bears the deductible under the construction contract, because it is frequently passed down to the subcontractor responsible for the loss.

Who arranges the policy

Standard construction contract forms allocate the duty to insure. In many forms the main contractor must take out a joint-names policy for the works and for third-party liability, in terms approved by the employer, and maintain it until completion. Some employers, particularly on larger developments, prefer to arrange an owner-controlled policy themselves so that they control the terms and the claims process. Public sector projects under PSSCOC follow the insurance requirements set out in the relevant form and its appendix.

Whichever party arranges it, the policy should be checked against the contract. Common mismatches include a sum insured lower than the contract value, a policy period that ends before the defects period, missing named parties, and inadequate third-party limits for sites with sensitive neighbours. Insurance is often presented alongside a performance bond before work starts, and both deserve the same scrutiny.

Where engineering meets insurance

From a structural engineer’s perspective, the claims that cause the most difficulty are those where the cause of loss is disputed. Was a slab collapse caused by an accidental overload, inadequate temporary works, or a design error? The answer determines whether the loss is covered and which exclusion applies. Clear design records, temporary works certificates and good site supervision records make that question much easier to answer.

Engineering controls also affect premiums and terms. Insurers look favourably on proper site investigation, monitoring of adjacent structures during excavation, robust flood protection for basements and documented quality checks. An owner who invests in these measures is not only reducing the chance of a loss but also strengthening the position if a claim must be made. If your project involves excavation next to existing buildings, our consultancy can help with the engineering assessment insurers often request.

Frequently asked questions

Is contractor all risk insurance compulsory in Singapore?

There is no general statute requiring CAR insurance for every project, but most standard construction contracts require it, and developers and lenders commonly insist on it, so on most formal projects it is a contractual requirement.

Does CAR insurance cover defects?

Usually only to a limited extent. The cost of replacing the defective part itself is often excluded, while consequential damage to other parts of the works may be covered depending on the defects clause in the wording.

Does the policy cover injury to workers?

Generally not under the third-party section. Employee injuries are dealt with under the Work Injury Compensation Act and the employer’s separate work injury compensation insurance.

How long does CAR cover last?

It normally runs from the start of work to completion or handover, often with an extension covering the defects liability period for loss caused by the contractor while returning to rectify defects.

Who should read the policy?

Both the owner and contractor, ideally with an insurance broker and legal adviser, to confirm the sum insured, named parties, limits, deductibles and exclusions match the contract.

Need an engineer’s assessment of excavation, temporary works or adjacent-building risk for your insurer? Talk to our consultancy or get in touch.