Contractors All Risk (CAR)
Definition
Contractors All Risk (CAR) Insurance is an all-risk policy covering physical loss or damage to civil construction projects during the construction period. It protects contract works, materials, temporary structures, and includes third-party liability. In India it is essential for projects ranging from residential buildings to highways, bridges, and metro rail.
Explanation in Simple Language
CAR policies have two main sections. Section I covers Material Damage — the permanent works under construction, raw materials on site, temporary works like scaffolding, and construction plant if specified. Section II covers Third Party Liability for bodily injury or property damage caused by construction activities to neighbouring people and property.
The policy runs from commencement of work until handover to the principal, plus a maintenance period (typically 12-24 months) for defects originating during construction. The sum insured must equal the full contract value including materials, labour, and contractor profit. Under-insurance triggers the Average Clause.
Key exclusions include wear and tear, design defects (unless LEG endorsements are added), consequential losses like project delays, penalties, and war/nuclear risks. LEG 2/96 is the most commonly recommended endorsement — it excludes the cost of rectifying the defective part but covers resulting damage to sound work.
Real-Life Indian Example
M/s Bharat Construction won a Rs 300 Crore highway contract in Rajasthan. During monsoon, flash floods washed away 2 km of newly laid road base and destroyed materials at the base camp — total loss Rs 6 Crore. The CAR policy surveyor assessed the loss, verified it against daily construction logs and material receipts, and the claim of Rs 5.8 Crore (after Rs 5 Lakh deductible and salvage) was settled within 60 days.
Claim Scenario
A metro tunnel project in Bengaluru encountered an unexpected geological fault causing 50m of tunnel collapse and surface subsidence damaging 3 buildings. Section I claim for tunnel repair and TBM damage: Rs 43 Crore. Section II claim for building damage and family relocation: Rs 12.85 Crore. Total claim of Rs 55.6 Crore was settled in 4 months after geological surveys confirmed the event was sudden and unforeseen.
Learning for POSP / Advisor
- Sum insured must equal full contract value — under-insurance triggers Average Clause
- Always recommend maintenance period cover (12-24 months) — defects after handover are very common
- Advise LEG 2/96 endorsement for design defect protection
- Section II (Third Party Liability) is critical for urban construction sites near residences
- Key documents for quote: contract value, construction type, period, location, flood/earthquake zone
- CAR is practically mandatory for all government and bank-funded projects
Summary Notes
1. CAR is an all-risk policy for civil construction — covers everything unless specifically excluded.
2. Two main sections: Section I (Material Damage) and Section II (Third Party Liability).
3. Sum insured = full contract value; under-insurance triggers Average Clause.
4. Maintenance period (12-24 months post-handover) covers construction-origin defects only.
5. LEG endorsements define design defect coverage — LEG 2/96 is most recommended.
6. Project delay losses, penalties, and consequential losses are excluded — need separate DSU policy.
7. Practically mandatory for government, bank-funded, and major private projects in India.