Cover Your Assets with Construction All Risks Policy

What is a Construction All Risks Policy?

A construction all risks policy (often called CAR insurance) is a specialized type of insurance that covers many risks that can happen during a construction project.

Here’s a quick overview of what it does:

• Covers Property Damage: Protects the physical project, materials, and equipment from unexpected damage.
• Covers Third-Party Liability: Protects against claims from people outside the project who get injured or whose property gets damaged because of the construction work.
• "All Risks" Approach: This policy covers all risks unless they are specifically listed as excluded. This makes it very broad.
• Project-Specific: It's usually set up for a single project and ends when the project is done.
• For All Involved: It can cover the contractor, project owner, subcontractors, and even funders under one policy.

Construction projects in Massachusetts, from Boston to new homes in Newton and Wellesley, face many potential pitfalls. Unexpected events can cause huge financial setbacks and legal battles. A Contractors' All Risks (CAR) policy offers a vital safety net, providing comprehensive protection to keep your project on track.

We have spent years helping businesses across Massachusetts, including those in construction, secure their futures. My expertise in risk management and deep understanding of policies like the construction all risks policy allows us to guide clients, ensuring they have the right coverage to protect their significant investments.

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Unlike standard property insurance, a CAR policy is a non-standard, "all risks" policy designed for the dynamic environment of a building site. This means it covers every potential risk unless explicitly excluded, providing a remarkably broad safety net. A CAR policy addresses the two primary risks on construction projects: property damage and third-party injury claims. It bridges coverage gaps from separate, less comprehensive policies, offering a single, streamlined solution for peace of mind from start to finish.

Who Needs and is Covered by a CAR Policy?

The beauty of a construction all risks policy is its inclusivity. It protects a wide array of parties with a vested interest in the project's success. This typically includes:

• Project Owners/Principals: Protects the investment of those commissioning the work.
• General Contractors: Safeguards the primary party responsible for the project against financial liability.
• Subcontractors: Protects specialists (e.g., electricians, plumbers) for their work and liabilities. We proudly help contractors in Brookline and Needham secure their operations.
• Financiers and Lenders: Protects the financial stake of banks or institutions funding the project.
• Architects and Engineers: Their interest in the physical works can be noted, though professional negligence is covered by a separate Professional Indemnity policy.
• Material Suppliers: Protects materials in transit or stored off-site.

Essentially, anyone with a financial interest in the project can benefit from being named on a CAR policy. This includes a wide range of participants involved in a construction project. For our artisan contractors in Massachusetts, understanding these comprehensive protections is key. Learn more about how we help with Artisan Contractors Insurance Massachusetts.

The Primary Goal of a CAR Policy

The main goal of a construction all risks policy is to create a unified insurance umbrella for the project. Covering all parties under one policy simplifies the claims process, avoiding the finger-pointing and legal battles between different insurers that can cause long delays.

With a CAR policy, this chaos is avoided. For example, if a contractor damages a building they are working on, the owner can file a claim. If both are on the same policy, the insurer pays for the damage but cannot sue the contractor to recover the funds. This mechanism, related to "joint names" and subrogation, fosters a collaborative environment. The focus shifts from blame to repairing the damage and getting the project back on track, ensuring project continuity.

Unpacking Your Construction All Risks Policy Coverage

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The term "all risks" is a fundamental principle of a CAR policy. It means the policy covers all risks of physical loss or damage except for those specifically excluded. This differs from "named perils" policies, which only cover risks explicitly listed.

A CAR policy is designed to cover the physical aspects of the construction project itself. This includes:

• Contract Works: The actual building or civil engineering works under construction, including temporary structures.
• On-Site Materials: All materials intended for incorporation into the works, whether installed or awaiting use.
• Plant and Equipment: The machinery, tools, and equipment used on the construction site.

This comprehensive approach helps protect your investment. For a deeper dive into what construction insurance generally covers, check out our Construction Insurance Coverage Guide.

What a Typical CAR Policy Covers

While the "all risks" nature means broad coverage, here are some common perils and damages that a construction all risks policy typically covers:

• Fire and Arson: Covers damage from fire, including malicious acts.
• Flood and Water Damage: Covers natural flooding and water escape from pipes or tanks on site.
• Theft and Vandalism: Protects materials, equipment, and the works from theft or malicious damage.
• Natural Disasters: Such as windstorms, hail, earthquakes, and typhoons.
• Collapse: Unintended structural failure during construction.
• Construction Faults and Errors: Covers resulting damage from improper construction, though the faulty work itself is often excluded.
• Accidental Damage: Any sudden, unforeseen, and accidental damage not specifically excluded.
• Third-Party Bodily Injury: If a member of the public is injured due to construction activities.
• Third-Party Property Damage: Covers damage to adjacent properties or assets from construction operations, including vibration.

It’s truly a robust shield against a myriad of potential problems that can arise on a busy construction site.

Common Exclusions in a Construction All Risks Policy

No insurance policy covers everything. A construction all risks policy defines its scope by what it excludes. Understanding these exclusions is critical. Common exclusions include:

• Willful Negligence: Damage caused intentionally or by reckless acts.
• Poor Workmanship: The cost to repair faulty work is excluded, but resulting damage may be covered.
• Normal Wear and Tear: Gradual deterioration of equipment or materials.
• Faulty Design: Design errors are excluded and typically covered by a separate Professional Indemnity (PI) policy.
• Employee Theft: This falls under other types of business crime insurance.
• War and Terrorism: Standard exclusions, though terrorism cover can often be added back by extension.
• Consequential Loss: Indirect financial losses like lost profit from project delays are excluded unless added as an extension.
• Asbestos and Pollutants: Costs for removing hazardous materials are usually excluded.
• Directors' and Officers' Liability: Covered by a separate D&O policy.
• Loss of Profit: Requires a specific extension.
• International Work: Unless the policy is explicitly designed for international projects.
• Employers' Liability: Injuries to your own employees are covered by this separate, often legally mandated, insurance.

It's always wise to review your specific policy documents carefully to understand all exclusions.

Can Coverage Be Extended?

Yes, a CAR policy is flexible. You can add endorsements to tailor coverage for your project's specific needs, covering events or losses that might otherwise be excluded.

Common extensions include:

• Debris Removal Costs: Covering the expense of clearing away debris after an insured event.
• Professional Fees: Covers fees for architects and engineers needed to reinstate the works, often up to 15% of the replacement value.
• Delay in Start-Up (DSU) / Soft Costs: A critical extension covering financial losses (lost rent, loan interest) from project delays caused by an insured event.
• Materials in Transit: Covering materials while they are being transported to the construction site.
• Off-Site Storage: Protecting materials and equipment stored away from the main construction site.
• Non-Negligent Damage Liability (JCT 6.5.1): Covers damage to existing property not caused by contractor negligence (e.g., unforeseen ground conditions).
• Homebuyer Protection Insurance: Mandatory in many Massachusetts towns for new permits, this can cover damage from design errors or faulty work for up to 10 years post-completion. Talk to the Kovalev Insurance team to see how this protection can fit into your project.
• Custom Duty and Air Freight: Covering additional costs for imported materials or expedited shipping.
• Escalation: Adjusting the sum insured for inflation over the project's duration.
• Glass Breakage: Covering damage to installed glass.
• Maintenance Visits: Extends coverage for risks originating during construction into the maintenance period.
• Acts of Terrorism: Adding back coverage for terrorist acts.
• Excess Third-Party Liability: Increasing the limits for third-party liability.

CAR vs. Other Construction Insurance in Massachusetts

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Navigating construction insurance can be confusing. For contractors in Massachusetts, from Belmont to Natick, understanding the differences between policies is vital to avoid coverage gaps and build a complete insurance portfolio.

How CAR Differs from Builders Risk and General Liability

Let's break down how a construction all risks policy stands apart from two other common construction-related insurance types: Builders Risk and General Liability.

At Kovalev Insurance, we understand these distinctions are crucial for our Massachusetts clients. We have detailed guides on What is Builders Risk Insurance in Massachusetts? and General Liability Coverage Massachusetts to help you build your perfect insurance strategy.

Why Not Just Use Separate Policies?

You might ask, "Why not just buy a Builders Risk policy for the property and a General Liability policy for third-party claims?" A construction all risks policy offers distinct advantages:

1. Bridging Coverage Gaps: A CAR policy minimizes the risk of coverage gaps that can occur with separate policies. When an incident falls in a grey area, insurers might dispute responsibility, causing delays. A CAR policy's comprehensive nature avoids this.
2. Simplified Administration: One comprehensive policy is easier to manage than multiple policies with different terms and renewal dates, reducing administrative burden.
3. Potential Cost Savings: Bundling coverages into a single CAR policy can sometimes be more cost-effective than purchasing them individually.
4. Avoiding Disputes Between Insurers: A "joint names" CAR policy reduces insurer disputes and subrogation between insured parties. This leads to less finger-pointing and faster project recovery.
5. Peace of Mind: Knowing you have a single, robust policy protecting your project from a vast array of risks allows you to focus on what you do best: building.

Key Policy Features and Their Implications

Understanding the big picture of a construction all risks policy is a great start, but the details open up its true power. Getting to grips with key features ensures your policy works for everyone involved, protecting your project and keeping it moving forward, especially here in Massachusetts.

What Does a "Joint Names" Policy Mean?

A powerful feature of a CAR policy is the "joint names" concept. This means multiple parties—the owner, main contractor, key subcontractors, and financiers—are all listed as insured on the same policy, placing everyone under one protective umbrella.

This is a smart way to manage risk. A CAR policy in joint names aligns the different interests of all parties. This approach, known as "composite insurance," covers everyone's stake under one plan, simplifying claims and encouraging teamwork. For a deeper dive, contact our specialists at Kovalev Insurance.

The Impact on Subrogation

Subrogation is a key legal concept. Normally, after paying a claim, an insurer can sue the at-fault party to recover its costs. This is the insurer's right of subrogation.

However, with a "joint names" construction all risks policy, the insurer generally waives the right to subrogate against anyone else named on the policy. This is a game-changer for complex construction projects in the Greater Boston area.

For example, if a contractor on the policy accidentally damages the building, the policy pays for the repairs. The insurer then cannot sue the contractor to recover that money, even if they were at fault.

This prevents legal battles between insured parties, fostering a collaborative environment. The focus is on fixing the problem and getting the project back on track, ensuring continuity and cooperation on the construction site.

Frequently Asked Questions about Construction All Risks Policies

Construction insurance can be complex. We've compiled answers to common questions about construction all risks policies from contractors across Massachusetts, from Boston to Newton and Wellesley.

What is the difference between a CAR and an EAR (Erection All Risks) policy?

CAR and EAR policies are related but serve different purposes. Understanding the distinction is key to getting the right coverage.

CAR (Contractors' All Risks) policies are for traditional construction projects like new buildings, roads, and bridges. The major risks include fire, storms, flood, theft, and accidental damage.

EAR (Erection All Risks) policies are specialized for installing and testing electrical or mechanical machinery and plant equipment, like turbines or industrial machinery. The key risk is often breakdown and explosion during the testing phase.

Many large projects need both. A new manufacturing facility, for example, might require CAR coverage for the building and EAR coverage for the equipment installation. Some insurers offer combined policies that integrate both.

How is the cost of a CAR policy determined?

The cost of a construction all risks policy is unique to each project and depends on several factors:

• Project Value and Duration: Higher value and longer projects have more exposure and thus higher premiums.
• Location: Projects in areas prone to natural disasters (like coastal flooding), high crime, or with geological concerns will have higher premiums.
• Type of Construction: Complex projects like skyscrapers or tunnels carry more risk and higher costs than simpler structures.
• Contractor's Claims History: A clean claims history helps keep costs down, while a history of frequent or severe losses will increase premiums.
• On-Site Security: Robust security and risk mitigation measures (fencing, cameras, fire prevention) can help reduce costs.
• Coverage Limits and Deductibles: Higher limits and lower deductibles increase the insurer's risk, resulting in higher premiums.

Who is responsible for taking out the policy?

Responsibility for securing a construction all risks policy typically depends on the construction contract (e.g., JCT, FIDIC, NEC), which specifies who procures the insurance.

Project owners sometimes take the lead in an Owner Controlled Insurance Program (OCIP), coordinating insurance for all parties.

More commonly, the main contractor takes responsibility in a Contractor Controlled Insurance Program (CCIP).

Crucially, regardless of who arranges the policy, it's almost always in joint names. This means the owner, contractor, subcontractors, and lenders are all named as insured. This joint approach ensures comprehensive, collaborative protection. Who pays the premium is less important than ensuring all key players are protected under one policy, which prevents disputes and coverage gaps.

Secure Your Next Massachusetts Project

The world of construction is filled with innovation, hard work, and surprises. From new commercial hubs in Greater Boston to historic renovations in Newton or Wellesley, every project carries risk. That’s where a construction all risks policy becomes your ultimate safeguard.

A CAR policy offers comprehensive protection against property damage and third-party liabilities. Its "all risks" approach bridges coverage gaps, while the "joint names" feature simplifies claims. This policy is a strategic investment in your project's financial security and continuity.

For contractors building across Massachusetts, whether you're laying foundations in Brookline, raising structures in Needham, or developing properties in Belmont and Natick, having the right protection is absolutely essential. Here at Kovalev Insurance, we're proud of our deep expert insurance industry knowledge. We're not just about policies; we're about understanding your unique needs.

We specialize in crafting custom coverage options designed specifically for your projects. Our goal is to make sure you get the best rates with lightning-fast speed and efficiency. You pour your heart and soul into your work; don't let unforeseen risks undermine that effort.

Ready to build with confidence? Let us help you lay a solid foundation of protection for your next project. Get a quote for your next project today, and let's get building!