January 17, 2023

Erection All Risks Insurance Policy

Erection All Risks Insurance Policy

Erection All Risks (EAR) Insurance covers projects that involve the installation of equipment, such as plant or machinery, at a manufacturing unit, construction site, warehouse, office, or other commercial premises.

Whether setting up a new office, constructing an industrial unit, or expanding a manufacturing facility– all projects necessitate the use of heavy plant and machinery. From storage, testing, and transportation, to dismantling and re-construction– a large number of processes go into making a functioning unit. During this time, the project faces a number of risks that can cause substantial losses and even lead to its termination. An Erection All Risks Insurance policy equips businesses with the right tool to safely carry out large-scale engineering projects.

EAR Insurance is an “All Risks” insurance policy, meaning it provides protection against all foreseeable risks other than those explicitly mentioned in its exclusions list. This policy offers a comprehensive cover for any physical loss or damage to insured property at the construction site while it is being stored, erected, tested and maintained. It also covers third party liability for any injuries, illness, death, or damage caused to a third party at the construction site.              

Coverage under this policy starts from the moment materials arrive on site and continues through the testing and commissioning process, providing complete protection for the duration of the project. This policy can even be used to secure the installation of a single machinery at a manufacturing plant.

EAR insurance is an essential coverage for businesses involved in the construction and installation of large-scale engineering projects. This type of insurance is typically taken out by contractors, engineering firms, and manufacturers who are engaged in the construction of thermal power stations, oil refineries, fertilizer plants, and the installation of electrical equipment. The policy provides coverage for various risks that may arise during the construction phase, including damage to the project site, equipment, and materials.

As technological advancement and integration continue to play a significant role in economic projects, the need for EAR insurance has become increasingly important. The policy not only protects businesses from financial loss due to unexpected events, but it also helps ensure that projects are completed on time and within budget. Additionally, it helps businesses to comply with legal and regulatory requirements, which is particularly important for those operating in highly regulated industries such as power generation and oil and gas.

Given the high costs associated with construction projects and the potential for significant financial loss due to unforeseen events, EAR insurance is a valuable investment for businesses of all sizes. It provides peace of mind, allowing companies to focus on delivering the project successfully without worrying about the potential risks. It also offers protection against third-party liability claims, which can result from accidents, injuries or damage caused to third party property during the construction process.

An EAR Insurance policy is highly versatile and adaptable, providing coverage for a wide range of project sizes. Whether it is the construction of a large industrial plant or the installation of computer equipment in an office setting, the benefits of this policy are far-reaching and can be tailored to meet your specific needs. In general the following stakeholders can purchase an EAR policy:

  • Contractors or subcontractors
  • Property owners or renters
  • Business owners
  • Suppliers and manufacturers of equipment

Coverage under an EAR policy is provided under two sections:

Section I - Material Damage Cover

This section provides coverage to any material loss of or damage to insured machinery, plant, or equipment during the policy period. Here, property is protected against the following risks that may arise during the storage, assembly, construction, or testing stages:

Section II - Third Party Liability Cover

This section provides coverage against the insured’s legal liability towards third parties. This includes:

  • Accidental loss or damage to third party property including property held in trust or under custody
  • Fatal or non-fatal injury to any person other than the business’s own employees or workers
  • All legal expenses in the event of a lawsuit or claim for compensation
  • Any compensation or damages paid to the claimant
  • All other costs and expenses, in connection with the business's legal liability, incurred with the written consent of the insurance company

Add-on covers

In addition to the above, this policy also comes with the following add-on covers on payment of additional premium:

  • Earthquake
  • Terrorism
  • Clearance and removal of debris
  • Any damage to the surrounding property
  • Provision for escalation of Sum Insured
  • Additional rate for express freight (air freight excluded), holiday and overtime rates of wages
  • Additional rate for air freight only
  • Additional custom duty
  • Loss due to breakage of glass
  • Storage rate at fabricators’ premises/workshop
  • Maintenance visits cover and extended maintenance cover

In general, an EAR policy will not cover any material damage or financial loss caused by:

  • Wilful act or wilful negligence of the insured business or its employees/representatives
  • The policy’s deductible or excess for each claim
  • Normal wear and tear, gradual deterioration, lack of use, obsolescence, rust, etc.
  • Faulty design, defective material or casting, or bad workmanship
  • Any damages or penalties incurred on account of the business’s non-fulfillment of the terms of completion under the contract of construction
  • The cost necessary for rectification of any error during erection
  • Damage to files, drawings, accounts, bills, currency, packing materials etc.
  • Bodily injury to or illness of employees or workmen of the contractor(s) or the principal(s) or any other firm connected with the project
  • Damage to road vehicles or water-borne vessels
  • Any accident caused by vehicles licensed for general road use or by waterborne vessels or aircraft
  • Nuclear and allied perils
  • War and allied perils
  • Total or partial cessation of work
  • Losses discovered only at the time of taking an inventory
  • Consequential loss or liability of any kind

In conclusion, Erection All Risks (EAR) Insurance is a vital component for any engineering project involving machinery and equipment. It provides comprehensive protection throughout the installation and construction process, ensuring that your manufacturing unit or plant is built without interruption from unexpected risks.

Further Reading

Contractor’s Plant and Machinery (CPM) Insurance
Factory Insurance | Coverage, Exclusions, and Benefits

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.