Contractors' All Risks (CAR) Insurance: Definition and Example

Contractors' All Risks (CAR) Insurance

Investopedia / Laura Porter

What Is Contractors' All Risks (CAR) Insurance?

Contractors' all risks (CAR) insurance is a non-standard insurance policy that provides coverage for property damage and third-party injury or damage claims, the two primary types of risks on construction projects.

Damage to property can include improper construction of structures, the damage that happens during a renovation, and damage to temporary work erected on-site. 

Third parties, including subcontractors, may become injured while working at the construction site. CAR insurance not only covers those associated risks but also bridges these two types of risks into a common policy designed to cover the gap between exclusions that would otherwise exist if using separate policies.

CAR insurance coverage is common for construction projects involving buildings, water tanks, sewage treatment plans, flyovers, and airports.

Key Takeaways

  • Contractors' all risks (CAR) insurance is a non-standard insurance policy that provides coverage for property damage and third-party injury or damage claims.
  • Those are the two primary types of risks on construction projects.
  • Damage to property can include improper construction of structures, the damage that happens during a renovation, and damage to temporary work erected on-site. 
  • Third parties, including subcontractors, may also suffer injuries while working at the construction site.
  • The goal of a CAR insurance policy is to cover all parties on a project.

Understanding CAR Insurance

Typically, both contractor and employer jointly take out CAR insurance policies. Other parties such as financing companies have the option of being named to the policy. Because multiple parties are included in the policy, each retains the right to file a claim against the insurer. All parties have the duty to inform the insurer of any injuries and damages that may result in a claim.

The goal of a CAR insurance policy is to ensure that all parties on a project are covered, regardless of the type of damage to the property or who caused the damage.

Insurers who underwrite this type of policy lose the right to subrogation. That means that if an insurance company pays out funds to one party in the contract, it cannot seek to recover those funds from another party in the contract.

For example, if the owner of a large building and the contractor working on the building are on the same CAR policy, any damages to the building caused by the contractor can be recovered by the building owner when a claim is filed. The insurer, however, cannot seek to recover funds from the contractor.

A CAR insurance policy also provides coverage against property losses or damages caused by fire.

Risks often covered under a CAR policy include flood, wind, earthquakes, water damage, mold, construction faults, and negligence. They typically do not cover normal wear and tear, willful negligence, or poor workmanship.

Extending CAR Coverage

CAR coverage may be extended to cover the interests of manufacturers, suppliers, contractors, and subcontractors.

The policy can also be expanded to cover the following events:

  • Additional custom duty
  • Air freight
  • Damage to surrounding property
  • Debris removal
  • Earthquake
  • Escalation
  • Loss due to breakage of glass
  • Maintenance visits

Additionally, CAR policies may be designed to include losses incurred when start up is delayed because of another insured loss. For example, if a structure is damaged and is covered by CAR insurance, then the losses incurred as a result of a delay in opening the property while the damage is being repaired may also be covered.

CAR policies can also be expanded to include a provision for escalation, to cover acts of terrorism, and to cover excess third-party liability, among other less common scenarios.

Is All Risk Insurance the Same as General Liability Insurance?

Normally, an all risk insurance policy limits coverage to the construction of a property and ends once the project is finished. A general liability insurance policy can provide coverage for damage to a property for an ongoing period of time after the project is done and the property is sold and/or ocuupied.

Who Needs Contractors' All Risk Insurance?

Contractors who want to protect themselves against the potential for financial liability due to property damage or injury that may occur during a construction project should consider CAR insurance. A CAR insurance policy can provide you with the assurance that such costs would be covered should the unexpected happen on the job. It can give you peace of mind knowing that, in such circumstances, your business can survive.

Which Parties on a Project Take Out a CAR Insurance Policy?

Typically, the project contractor and the party that hired the contractor (e.g., the property owner) together take out a CAR insurance policy. Others can also be named on the policy, including the finance company, subcontractors, suppliers, and manufacturers.

The Bottom Line

Construction projects offer up a myriad of financial risks related to property damage and third-party injury. Contractors' all risk insurance is a a non-standard insurance policy that covers these risks when they're caused by such things as fire, flood, wind, earthquakes, and construction faults at the construction site during a project.

Contractors hired to lead a building project should consider a CAR policy. Knowing that you're protected against financial claims related to property damages and injuries can instill confidence and provide peace of mind throughout a project.

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