Three of Twelve Fabs Are Running: The Erection-All-Risks to Operational Handover Indian Semiconductor Projects Keep Fumbling

Semicon India 2026 runs from 17 to 19 September at Yashobhoomi (IICC), Dwarka, New Delhi, jointly organised by SEMI and the India Semiconductor Mission under the theme Silicon to Systems: Building the Ecosystem. Business Standard reported on 18 August 2026 that the event expects more than 500 exhibitors, over 290 international companies, more than 150 speakers and delegations from over 40 countries.

The same report carries the number that matters for insurance programmes: as of August 2026, 3 of the 12 approved commercial facilities under the India Semiconductor Mission are operational, against total approved investment of Rs 1,65,685 crore across six states.

Read that from a broker's chair. Nine projects sit somewhere between earthworks and yield ramp, and every one of them will have to cross the same bridge in the next few years: the transition from an erection all risks programme to operational property and business interruption cover. Three projects have already crossed it, so the market now has live examples of what goes wrong. The construction phase itself has its own placement problems, which we covered in our note on fab construction-phase insurance. This post is about the seam between the two policies, because that seam is where claims get disputed and where cover quietly does not exist.

Standard EAR wordings terminate cover for any part of the works that is taken over or put into commercial use, whichever comes first. On a road or a power plant that is a clean line. On a fab it is not, for two reasons.

First, fabs hand over in sections. The base build, the cleanroom envelope, the utility levels (bulk gases, ultrapure water, chemical distribution) and the process bays reach completion at different dates, and the owner starts using utility systems long before the last tool is qualified. Under a section-by-section takeover, EAR cover falls away bay by bay while erection work continues next door. Damage that spreads from an area still under erection into an area already taken over lands between two policies, and both insurers will read the takeover certificate before they read the loss adjuster's report.

Second, the testing and commissioning clause is usually too short. EAR testing periods are commonly written for four to eight weeks because that is what conventional machinery needs. Commissioning and qualifying a fab or OSAT line takes months: cold testing of utilities, hot commissioning of gas and chemical systems, then tool-by-tool installation qualification. If the testing period expires before qualification finishes, cover for testing-related damage simply stops, and no one notices until a tool is wrecked during a qualification run.

Delay in start-up cover indemnifies the financial consequences of a delayed commercial operation date, but only where the delay flows from physical damage the EAR policy responds to, and only for the indemnity period bought at placement. Two structural problems follow for semiconductor projects.

The indemnity period was set years before anyone knew the real schedule. A fab approved in 2024 with a 24-month DSU indemnity period may reach mechanical completion in 2027 having consumed most of that period through cumulative slippage. The remaining cover is thin exactly when the most valuable equipment is being energised.

DSU also ends at commercial operation, and a fab earns almost nothing at commercial operation. Revenue depends on yield ramp, which takes quarters. Operational business interruption cover attaches at handover, but its sum insured is built on projected gross profit that the plant will not actually generate for some time, while the debt service the project must meet is fixed from day one. The sum insured basis, the indemnity period and the ramp curve need to be reconciled in one exercise, ideally with the lender's insurance adviser in the room. We covered how underwriters actually rate this exposure in our note on semiconductor business interruption underwriting.

Defects wordings decide who pays when something built during erection fails after handover. The London Engineering Group clauses grade the cover: LEG1 excludes all loss from defects, LEG2 excludes the cost that would have been incurred to fix the defect had it been found before the damage, and LEG3 excludes only the cost of improving the original design, material or workmanship. For a fab, where a defective weld in a chemical distribution line can destroy tools worth many multiples of the pipework, the difference between LEG2 and LEG3 is the difference between a recovery and a write-off.

The handover complicates this in a specific way. Most EAR policies offer maintenance cover for the defects liability period, typically twelve months after takeover, in two grades: visits-only cover for damage the contractor causes while returning to remedy defects, and extended maintenance for damage from causes originating during erection. Meanwhile the operational property policy that attaches at handover carries its own defect and gradual-deterioration exclusions.

So when a latent construction defect causes damage eight months into operations, three parties argue: the EAR insurer says the policy expired at takeover, the operational insurer points to the defect exclusion, and the contractor's liability insurer waits for the other two to finish. The fix is contractual, not adversarial, and it has to happen before handover: align the EAR maintenance wording, the operational policy's defect exclusion and the EPC contract's defects liability clause so that every failure mode has exactly one named payer. Get the policy wording for both programmes reviewed side by side; a mismatch found at placement costs a negotiation, a mismatch found at claim costs the claim.

The most expensive single items on a fab project are process tools, and they spend months in the least clearly insured state of their lives: on the water, in bonded storage, being rigged through the cleanroom, under hookup, and in qualification. Ownership of the insurance obligation shifts across that chain between the tool vendor, the EPC or hookup contractor and the project owner, and the shifts rarely line up with the Incoterms in the purchase order.

Common failure points we see on Indian projects:

• Marine cargo cover ends at delivery to site, but the EAR policy's inland transit and offloading extensions were never checked against the tool values actually arriving.
• A tool arrives after its process bay has been taken over, so it is inside neither the EAR (section already handed over) nor the operational policy (not yet declared).
• The vendor retains care, custody and control until final acceptance, and everyone assumes the vendor's insurance responds, without ever sighting the vendor's certificate or its territorial limits for India.
• The EAR sum insured was fixed at contract value and never adjusted for tool price escalation or additional tools ordered mid-project.

A marine DSU placement that mirrors the EAR DSU matters here too, because a tool lost in transit delays commercial operation just as surely as a site fire. We set out that exposure in detail in our note on project cargo and delay in start-up for capital equipment imports.

On 4 August 2026, PTI reported via Business Standard that a fire at an electronic chip manufacturing unit in the Ecotech-3 industrial area of Greater Noida killed two firefighters and injured three. That loss is a reminder of two things brokers already know but sponsors sometimes discount.

Semiconductor facilities carry a serious fire and life-safety load: pyrophoric and flammable process gases, solvent chemistries, and large concealed cable and duct runs above and below the cleanroom. The handover window concentrates that exposure, because it is the one period when hot work, commissioning of live gas systems and partially commissioned fire protection coexist in the same building.

Operational property insurers will impose fire protection warranties from day one of attachment. If the sprinkler, gas detection and suppression systems are themselves still in commissioning at takeover, the insured can be in breach of warranty at the moment cover incepts. Sequence the fire protection commissioning ahead of the section takeovers, get the insurer's engineer to walk the site before attachment, and put the interim protection arrangements in writing as agreed subjectivities rather than discovering the gap after a loss. The same discipline applies to OSAT and ATMP lines, whose operational programmes we covered in our note on OSAT and ATMP operational insurance.

Run this as a standing agenda between sponsor, broker, EPC and lender's adviser. The dates are anchored to mechanical completion (MC) and commercial operation date (COD).

1. MC minus 12 months. Re-baseline the project schedule against the EAR period and testing clause. Extend the policy period and testing period now, while there is no loss on the table and the negotiation is about premium, not cover.
2. MC minus 9 months. Reconcile the DSU indemnity period against the revised COD and the ramp curve. Confirm remaining DSU cover still matches the debt service profile. Start structuring the operational placement.
3. MC minus 6 months. Side-by-side wording review: EAR maintenance clause, LEG grade, operational policy defect exclusions, EPC defects liability clause. Every failure mode gets one named payer.
4. MC minus 3 months. Tool audit. List every tool in transit, in storage and under installation with its value, its Incoterms, its care-custody-control holder and the policy that covers it today. Close every gap in writing.
5. At each section takeover: issue and file the takeover certificate the same day, notify both insurers, and confirm the operational policy attaches to that section with fire protection status documented.
6. COD. Confirm the operational BI sum insured and indemnity period against the final ramp plan, and diarise the first declaration adjustment.
7. COD plus 12 months. Before the defects liability period expires, sweep for latent defect issues and confirm the maintenance cover claims position with the EAR insurer before the policy is archived.

Nine projects under the India Semiconductor Mission will run this transition between now and the end of the decade. The three that are already operational crossed it with programmes designed years earlier. The delegations arriving in Delhi on 17 September will talk about capacity and ecosystems; the sponsors among them should also be asking who owns each risk in the months either side of takeover.