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RES5Financial Advisory Services✓CGI — Commercial General Insurance
Engineering and construction insurance is a family of commercial covers that protects the physical assets and liabilities involved in building projects, plant erection and the operation of machinery — chiefly Contractors' All Risks (CAR), Erection All Risks (EAR), machinery breakdown and boiler & pressure vessel insurance — combining material-damage cover for the works or plant with a third-party liability section and time-limited maintenance cover.
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Engineering insurance is the branch of commercial general insurance concerned with the special risks of CONSTRUCTION, ERECTION and MACHINERY. Ordinary fire and property policies are designed for completed, static buildings and their contents; they do not sit comfortably with a project that is changing shape every day, with materials being delivered, structures part-built, plant being installed, and many different parties working on one site. Engineering covers were developed to respond to these dynamic, technically complex exposures.
The branch is usually grouped into two broad families that recur throughout the syllabus:
A defining feature of engineering insurance is that most construction and erection policies are written on an 'ALL RISKS' basis: they cover sudden and accidental physical loss or damage from any cause that is not specifically excluded, rather than listing named perils. This is well suited to project work, where the causes of loss are varied and hard to anticipate. Operational engineering covers such as machinery breakdown, by contrast, respond to internal, mechanical or electrical failure that a standard property 'all risks' wording would typically exclude.
Contractors' All Risks insurance is the core cover for CIVIL ENGINEERING and BUILDING projects — offices, housing, roads, bridges, tunnels and similar works. It is normally arranged for the whole duration of the CONTRACT, from the start of work (or arrival of materials on site) through to completion or handover, and is usually a PROJECT-SPECIFIC policy running for the construction period rather than an annual policy, though contractors doing many small jobs may buy an annual 'contract works' cover.
A CAR policy is typically written for the JOINT NAMES of all parties with an interest in the works, so that everyone is covered under one policy and disputes and subrogation between them are avoided. Insured parties commonly include:
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CAR is a COMPOSITE policy usually made up of two main sections. SECTION 1 (Material Damage) covers physical loss of or damage to the permanent and temporary works, the materials and the contractor's plant and equipment on site. SECTION 2 (Third-Party Liability) covers the insured's legal liability to third parties for injury or property damage arising out of the works. Optional extensions can add cover for surrounding/existing property, debris removal, professional fees, escalation, and off-site storage.
Typical CAR exclusions reflect risks that are either uninsurable, better placed elsewhere, or within the contractor's control — for example wear and tear and gradual deterioration, the cost of rectifying DEFECTIVE materials or workmanship itself (as opposed to resulting damage to sound work), consequential/financial loss, penalties for delay (liquidated damages), and the usual general exclusions such as war and nuclear risks.