Construction all risks insurance

What it means

Construction all risks insurance covers a building under construction or equipment being installed against damage or destruction, for example from fire, storm, flood, theft of materials or workmanship errors. It is often combined with liability insurance for damage caused to third parties.

Unlike ordinary property insurance, which protects a finished building, it applies during construction, when risk is highest: the structure is open, many people and machines are on site and materials lie unprotected. Cover usually ends when the work is handed over to the client.

Either the client or the contractor can take it out, and one policy can insure all parties to the project, including subcontractors. Clients often require it in the construction contract so that damage during the build does not halt the project for lack of money.

How it works in practice

The sum insured is based on the total value of the works, including materials and labour, and sometimes site equipment. On longer projects the rising value must be anticipated and the insurance contract should provide for ongoing adjustment to avoid underinsurance.

The policy may also cover the testing and commissioning of equipment and the defects period during which the contractor fixes faults. For machines and production lines, commissioning is a frequent source of damage, so check whether it is included and on what terms.

The insurance must be aligned with the construction contract: who takes it out, who pays the premium, who bears the deductible and who receives the payout. Ambiguities only surface when damage occurs, and client, contractor and subcontractors then push responsibility onto each other.

What to watch out for

Exclusions mainly concern the defective work and materials themselves, wear and tear, and damage caused intentionally or through gross negligence. Insurers usually pay for the resulting damage, not the cost of fixing the faulty element itself, which often comes as a surprise.

When damage occurs, the key steps are reporting it immediately, documenting it and preserving the scene as far as safety allows. Entries in the site diary and the construction supervision report are often the decisive evidence of the cause and extent of the loss.