Glossary

Contractors' All Risks Insurance

A comprehensive policy that covers physical loss or damage to civil construction works, materials, and construction plant during the execution of a construction project, along with third-party liability arising from construction activities.

engineering insurance2 related terms

Last reviewed: April 2026

In plain English

When a building, bridge, road, or any civil structure is being built, this insurance covers accidental damage to the construction work itself and any injury to bystanders or neighbouring property, keeping the contractor and project owner financially protected during the entire construction phase.

Detailed explanation

Contractors' All Risks (CAR) Insurance is the foundational risk transfer mechanism for civil construction and infrastructure projects in India. The policy protects principals, contractors, and sub-contractors against accidental physical loss or damage to the contract works, construction materials, and temporary works throughout the construction period, including a maintenance period after handover. Modelled on the Munich Re standard CAR wording and adapted for Indian conditions, the policy covers a broad spectrum of perils on an all-risks basis, including fire, flood, storm, earthquake, landslide, theft, and accidental damage caused by negligence or defective workmanship. The standard policy structure includes Section I for the contract works, Section II for construction plant and equipment, and Section III for third-party bodily injury and property damage liability. In India, CAR insurance has become indispensable given the massive scale of infrastructure development under programmes like Bharatmala, Sagarmala, Smart Cities Mission, and the National Infrastructure Pipeline. Government agencies such as NHAI, NHPC, and state PWDs routinely mandate CAR cover in tender documents for road, bridge, dam, metro rail, and building projects. Lending institutions require it as a condition for disbursement of project finance. Key extensions available in the Indian market include escalation clauses for cost overruns, removal of debris cover, architect and engineer fees, and cross-liability coverage when multiple parties are insured under the same policy. Exclusions typically include wear and tear, defective design (though consequential damage may be covered), and penalties or liquidated damages for project delays.

Indian example

A contractor building a six-lane highway under an NHAI contract in Rajasthan experiences severe flash flooding that washes away 2 km of completed earthwork and a partially built bridge pier. The CAR policy covers the cost of reinstating the damaged works, debris removal, and architect fees for redesigning the drainage system, enabling the contractor to resume work without bearing the Rs 12 crore loss from its own balance sheet.

Frequently Asked Questions

What is typically not covered under a Contractors' All Risks policy in India?
Standard CAR policies exclude loss or damage due to wear and tear, gradual deterioration, and inherent defects in design (though resulting damage from defective materials or workmanship may be covered under the DE3 clause). Penalties and liquidated damages for delays are not covered, as the policy only responds to physical loss or damage. Consequential losses such as loss of profit are excluded unless a separate Advance Loss of Profits (ALOP) or Delay in Start-Up (DSU) extension is purchased. War, nuclear risks, and wilful misconduct are standard exclusions. Damage to existing structures owned by the principal requires a specific extension.
Who should be named as insured parties in a CAR policy for an Indian infrastructure project?
Best practice in India is to name all parties with an insurable interest under a single composite CAR policy with cross-liability coverage. This typically includes the principal or project owner (such as NHAI or a state government body), the main contractor, all sub-contractors, consulting engineers, and project management consultants. Naming all parties avoids subrogation issues where the insurer, after paying a claim, might seek recovery from an unnamed party who contributed to the loss. Lenders and financial institutions should be noted as loss payees to protect their security interest in the project assets.

Related Terms

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