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1. COTM 5104: CONSTRUCTION MANAGEMENT
Chapter 6
Insurance in Construction Industry
Dagncachew Adugna
March 2015
School of Civil Engineering

2. Contents
Insurance in Construction Industry
1. Introduction
2. Insurance Policy
3. Construction Insurance Check List
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

3. 1. Introduction
 Construction works by nature are hazardous and
accidents are frequent and often severe.
 The annual toll of deaths, personal injuries, and property
damage is extremely high.
 Thus, Parties in construction usually use Insurance to
cover such risks.
 Risks are caused due to accidents to owned properties or
due to liabilities.
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

4. 1. Introduction
 Liability, legally speaking, is a responsibility to some one
by one under the following conditions:
 Contractual Obligations (Performance Liability)
 Owning an item ( Strict Liability)
 Being responsible for some ones act ( Vicarious
Liability)
 The above liabilities create a huge risk on parties in
construction (especially contractors), and Insurance
becomes an important method to reduce these risks.
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

5. 2. Insurance Policy
 An insurance policy is a conditional contract under which
the insurer promises, for a consideration, to assume
financial responsibility for the specified loss or liability.
 Parties in Agreement:
 Insurer – covers for the loss or liability of the insured.
 Insured – must pay a premium for the promise of
protection against risk. Usually premiums are paid in
advance.
 The common parties involved in insurance are:
 Contractors – CARI (Contractors All Risk Insurance)
 Consultants – Professional Indemnity Insurance.
 Clients – for properties and projects.
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

6. 3. Construction Insurance Checklist
 Insuring everything is not an economic option as the
premium for the Insurance will be unbearable.
 The following check list is prepared for a Contractor:
 Property Insurance on Project
 Property Insurance on Own Property
 Liability Insurance
 Employee Insurance
 Motor Vehicle Insurance
 Business, Accident, and Life Insurance
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

7. 3. Construction Insurance Checklist
3.1 Property Insurance on Project
 1. All risk builder’s risk insurance
 2. Builder’s risk fire insurance
 3. Earthquake insurance
 4. Bridge insurnace
3.2 Property Insurance on own Property
 1.Fire insurance on contractors’s own property
 2.Contractor’s equipment insurance
 3.Motor truck cargo policy
 4. Burglary, robbery, and theft insurance
 5. Fidelity bond
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

8. 3. Construction Insurance Checklist
3.3 Liability Insurance
 1. Employer’s liability insurance
 2. Contactor’s public liability and property damage
insurance
 3. Contractual liability insurance
 4. Owner’s protective liability insurance – for
subcontractors
 5. Completed operations liabilty insurance
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

9. 3. Construction Insurance Checklist
3.4 Employee Insurance
 1. Workmen’s compensation insurance
 2. Old – age, survivors’, and disability insurance
 3. Unemployment insurance
 4. Disability insurance
3.5 Motor Vehicle Insurance
 Such insurance covers third party claims of bodily injury
or property damage involving the contractor's vehicle or
non-owned vehicles that are used in his interest.
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

10. 3. Construction Insurance Checklist
3.6 Business, Accident and Life Insurance
 1. Business interruption insurance
 2. Sole proprietorship insurance
 3. Accident insurance on key personnel
 4. Life insurance on key personnel
 5. Group life insurance
 6. Group hospitalization insurance
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

11. 3. Construction Insurance Checklist
3.7 Contractor’s All Risk Allowance
3.7.1 Brief Description
 Offers comprehensive and adequate protection against
loss or damage in respect of contract works, construction
plant and equipment and/ or construction machinery, as
well as third party claims in respect of property damage
or bodily injury arising in connection with the execution
of a civil engineering project.
 This policy is extremely useful for consulting engineers,
architects and financiers because it contributes to
reducing the overall construction expenses and at the
same time offers efficient financial protection for all
parties concerned.
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

12. 3. Construction Insurance Checklist
3.7 Contractor’s All Risk Allowance
3.7.2 Covered Risks
 Contractor's All Risk provides 'all risk' cover unless the
hazard is specifically excluded.
 It covers the risk of fire ,lightning, explosion, flood,
inundation, rain, snow, earthquake, theft, burglary, bad
workmanship, lack of skill, negligence, human, etc
3.7.3 Major Exclusions
 This policy is subject to only few exclusions. Loss or
damage to nuclear reaction, consequential loss, loss or
damage due to faulty design, loss or damage due to war
or war-like operation etc
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.

13. THANK YOU!
HU, iOT, Construction Management, Lecture Notes,March 2015, Dagnachew Adugna.