This document provides information about different types of engineering insurance policies. It discusses: 1) Construction phase insurance policies like contractors all risks policy and erection all risks policy which provide coverage during construction projects. 2) Operational phase insurance policies like machinery breakdown insurance and boiler and pressure plant insurance which provide coverage once projects are operational. 3) Key details of different engineering insurance policies including perils covered, exclusions, and policy provisions. The document aims to educate about engineering insurance for infrastructure development projects.

1. 1

2. To The Presentation
on
Engineering Insurance
2

3. Presenting
Group 01 (ID 01-10)
Group 02 (ID 11-20)
Group 03 (ID 21-33)
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4. Engineering Insurance
Engineering insurance refers to the insurance that provides
economic safeguard to the risks faced by the ongoing construction
projects, installation projects, machine & equipment in project
operations. This project can be divided into two types:-
1. Construction Project
2. Operational Project
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5. Infrastructure development comprises project ranging form:
1. Airports to bridge
2. Dams to tunnel to offshore structure
3. Refineries to reservoirs
4. Pipelines to power stations
5. Factories to hospitals
These projects assets are exposed to:
1.Physical losses involving accidental breakdown, repair, replacement
& loss of production.
2.Financial losses in terms of loss of income.
3.Third-party liability affecting a number of parties.
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6. Origin of EI:
 The origin of engineering insurance dates back to the 19th century.
 In great Britain it originated with James Watts invention of the steam
engine.
 As many as 500 steam engines of modest output capacity were already
in operation at the beginning of the 19th century
 An alarming situation was created due to explosions of steam boilers
resulting into heavy losses to property and personal injury.
 Engineering Insurance also involves technical expertise in the areas of
risk management
 EI aims at protecting business houses loss & disrupt there day to day
functioning
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7. Engineering Insurance policies can be divided
into two stages
Construction Phase Insurance
Policies
 Contractors all risks policy
 Erection all risks insurance policy
 Marine-cum-Erection insurance
policy
 Contract works insurance policy
Operational Phase Insurance
policies
 Machinery Breakdown Insurance
Policy
 Boiler and pressure plant insurance
policy
 Civil Engineering Completed
Risks insurance policy
 Deterioration of stocks insurance
policy
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8. Construction Phase Insurance Policy
Perils Covered are
 Fire, Lightning, Explosion, Flood,
Inundation
 Earthquake, Landslide, Subsidence,
Theft and Burglary
 Collapse, impact damage
 Act of terrorism
 Accidental damage , bad workmanship
Exclusions
 The amount of loss shown as
excess
 Loss discovered at the time of
inventory
 Penalties and fines
 Loss due to faulty design
 Vehicles licensed for general
use
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9. Operational Phase Insurance Policy
Insurable property includes
 Boilers
 Electrical equipment – generators, switchgears, transformers etc.
 Mechanical plants – engines, turbines etc.
 Lifting equipment – cranes, conveyors, lifts etc.
Perils covered are
 Electrical – short circuits, failure of
insulation etc.
 Mechanical – faulty material, design,
casting, explosion etc.
 External – entry of foreign bodies,
impact, collision etc.
Exclusions
 War and civil wars
 Nuclear risks
 Experimental loss due to
over loading or tests
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10. 1.Storage-cum-Erection insurance policy
This is a comprehensive policy covering all physical risks which a project is
exposed to right from the warehouse of the supplier of equipment - whether
imported or indigenous - to its erection, testing and commissioning at the
site.
The policy can be taken by the principal, contractor or sub contractor,
jointly or separately.
Risks covered under this policy
Fire, explosion, storm, Flood, earthquake and
theft
Parties to the Contract
The principal, contractor or
sub contractor
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11. 2. Erection All Risks Insurance Policy:
Under erection all risk insurance company indemnify the insured against
sudden & unforeseen physical loss of or damage to the property insured in the
manner & to the extent provided.
General Exclusions:
The company will not indemnify the insured in case of following:
 War invasion, act of foreign enemy
 Nuclear reaction & radiation
 Cessation of work whether total or partial
 Willful act or willful negligence of the insured
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12. General Conditions:
Two points are mentioning here are:
1. The insured is required to notify the company in the event of any
occurrence that might give rise to a claim under this policy.
2. The insurance may be terminated at the request of the insured at any time
in which case the insurers will refund appropriate premium amount.
Period of Cover:
 If any specific date is not mentioned in the schedule, the liability of the
company shall commence with the unloading of the property on the site &
shall continue until immediately after the first test operation. But in no
case the period shall extend beyond four weeks.
 If actual erection period is shorter than the period indicated in the
schedule, no refund of premium shall be allowed
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13. Section 1-Material Damage
The company will reimburse any loss caused to the items
specified in the schedule but would not exceed the limits specified
in the schedule.
Exclusion to Section -1
The company, shall not however liable for-
 Loss discovered only at time of taking an inventory
 Normal war & tear, gradual deterioration due to atmospheric
conditions
 Loss & damage due to faulty design, defective material, bad
workmanship
 The cost necessary to recitation or correction
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14. Provisions Applying to Section -1:
There are six memos attached to section 1 explaining
the provisions applying to it. These are:
1. Sum Insured
2. Premium Adjustment
3. Basis of loss settlement
4. Construction Plant & Machinery
5. Surrounding Property
6. Major Perils/ Acts of God claims
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15. Memo-1 : Sum Insured
The sum of insurance stated in the schedule could not be less than the
completely erected value of the property. Inclusive of freights, customs
duty, erection costs.
(sum of insurance stated in the policy) ≥ (completely erected value of the
property)
+Freight
+Customs Duty
+ Erection Cost
Any charge in sum due to rise or fall in the level of wages or prices can be
incorporated with the knowledge of the company.
Memo-2: Premium Adjustment
After the completion of the project the difference in premium due to
difference in estimated & actual cost will be adjusted on the basis of the
actual values to be declared by the insurance in respect of freight &
handling charges, customs dues & cost of erection. 15

16. Memo -3: Basis of Loss Settlement
 In case of damage which can be repaired, the cost if
repairs necessary to restore the items to their condition
immediately before the occurrence of the damage less
salvage
 In case of total loss the actual value of the items
immediately before the occurrence of the loss less salvage
Memo -4: Construction Plant & Machinery
Loss or damage to construction plant & machinery excludes
loss or damage directly caused by its own explosion or its
own mechanical or electronic breakdown.
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17. Memo-5: Surrounding Property:
The cost of surrounding property shall only be covered if :
 Occurring directly due to erection or construction, insured under
section 1
 Happening during period of cover
Memo-6: Major Perils/ Acts of God Claims
Claims arising out of:
 Earthquake, Fire & shock
 Flood/ inundation
 Storm/ tempest or other atmosphere disturbances.
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18. Section-ii: Third party liability [coverage]
 Legal liability for accidental loss or damage caused to
property of other persons, property under custody & trust.
 Legal liability for fatal or non-fatal injury to any person than
insured.
 All costs and expenses of litigation recovered by claim.
 All costs and expenses incurred within consent of the
company.
 Loss or damage to fault erection.
 Loss or damage to files drawings a/c, bills, currency.
 Any damage or penalties on a/c due to non-fulfillment of
terms of delivery.
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19. Exclusion from the coverage in case of-
-Excess stated in schedule
-Expenditure incurred making good.
-Liability consequent upon....
a) Bodily injury or illness of employee.
b) Loss to property belonging to custody.
c) Any accident caused by vehicle.
d) Any agreement by the insured as indemnity.
Conditions applying to section-ii
1. The insured should not make any admission, offer or promise or
payment to settle the claim without the consent of the company.
2. Total amount insured decrease with each compensation made.
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20. 3.Contractors all risks insurance:
1) All civil engineering works including massive dams;
2) Housing developments ,industrial buildings, offices
or flats;
3) Water treatment plants, canals, roads;
4) Bridges, tunnels, docks;
5) Cooling's towers, storage trunks ,dams reservoirs,
piers.
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21. 4.Contractors Plant and Machinery Insurance
Policy
This is a comprehensive policy available against unforeseen and sudden
physical damage to the property by any cause, which has not been
specifically excluded.
Basis of Indemnity:
In case of damage, necessary repair charges including dismantling and re-
erection will be admitted.
Rating:
The rates and excess are governed by tariff.
Extensions:
Extensions are available on payment of additional premia for third party
liability cover, owner's surrounding properly and removal of debris.
Boiler and Pressure Plant Insurance Policy:
Boilers and pressure vessel are commonly used in production plant, like
cotton mill, paper mill, petrochemical plant etc. 21

22. 5.Boiler and Pressure Plant Insurance Policy
Boilers and pressure vessels are commonly used in production plants
like cotton mill, paper mill etc.
Related terms/factors:
1. Boiler (any fired closed vessel )
2. Pressure ( any unfired closed vessel)
3. Explosion (violent rending of the boiler structure)
4. Collapse ( dangerous distortion of boiler part)
5. Flue gas explosion (explosion of ignited gas)
6. Chemical explosion (explosion from chemical reaction)
22

23. Different perils that covers the policy
1. Damage (other than by fire) to the boilers and or other pressure
plant or surrounding property described in the schedule.
2. Liability arising due to death of or bodily injury to any person.
3. Liability arising from damage to any property.
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24. GENERAL EXCEPTIOS:
1. Damage caused by war, hostiles,.
2. Defects like wearing away, or wastage of material of any part.
3. Damage due to negligence.
4. Consequential losses.
5. Damage due to flaws known but not disclosed by the insured.
WARRANTIES:
1. Annual Inspection of boiler by appropriate authorities.
2. Only certified competent people will handle the boiler.
3. The boiler must work under permissible pressure limits.
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25. CONDITIONS:
1.If any specific meaning is attached to any term in either of
them, it will apply to whole of the policy.
2.The pressure on the safety values should not exceed the
limits permitted in the latest inspection or the limit
specified in the schedule, whichever is lower.
3. If there is any change in the type of fuel used in the boiler.
POLICY TERMINATION:
a. The insured at request.
b. The insurer by notice of 15 days.
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26. GENERAL REGULATIONS:
1. No policy to be issued-on first loss basis.
2. No policy to be issued with a bonus basis.
3. Sum insured.
4. Boiler and pressure plant insurance policy can not be issued on
agreed value basis.
5. Escalation benefit shall not be allowed under a boiler and
pressure plant policy.
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27. 6.Machinery breakdown insurance policy:
The policy covers ,damages to machinery are:
1) At work, at rest, at the time of repairing;
2)shifting or subsequent re-erection.
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28. General exceptions:
1) Loss or liability arising from fire or natural calamities;
2) Loss arising from war, invasion, nuclear reaction, nuclear radiation
etc.;
3) Loss from overload experiments or testing;
4) Loss from willful act or misconduct;
5) Liability from faults at the time of commencement;
6) Explosions in chemical recovery boilers.
Special exclusions:
1)loss to belts, ropes, chains or exchangeable tools etc;
2)loss of the manufacturer, supplier by law or contract
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29. 7.Machinery Loss of Profits Insurance
The policy covers the losses emerged from unforeseen and sudden
damages to any machinery specified in the schedule, during the
policy period.
 Requirements for making machinery loss
of profits insurance
•The liability for claims remains within specific limit.
•The accident should be covered by the policy for a specific period.
•The terms and conditions of the policy must be fulfilled.
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30. Provisions
Five memos explaining the provisions attached with the standard policy
Memo 1- Benefits from other premises
If during the indemnity period, goods are sold elsewhere than at the
premises for the benefit of the business, the money paid or payable in
respect of such sales shall be taken into consideration to arrive at the
turnover.
Memo 2- Relative importance
In the event of an accident affecting the insured item of machinery, if the
percentage of relative importance stated in the list of machines &
plant for this item is lower than the actual, the company shall only be
liable to indemnify the proportion in accordance with the percentage
stated in the list.
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31. Memo 3- Returns of premium
If any accident has occurred giving rise to a claim under this policy,
the amount of such claim shall be added to the revised gross profit as
certified by the insured's auditors before calculating the
proportion of return of premium.
Memo 4- Overhauls
In calculating the loss, due allowance shall be made for the time
spent on any overhauls, inspections or modifications carried out
during any period of interruption.
Memo 5- Reinstatement of sum insured
For the period following the occurrence of an accident up to the
end of the policy period, the sum insured shall be reinstated by
payment of an additional premium on a pro-rata basis.
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32. Exclusion
 Loss or damage caused by any fault or defects existing at the time of
commencement of this insurance within the knowledge of the insured.
 An extension of the normal period for more than 4 weeks on account
of the inability to carry repairs or to secure replacement.
 Loss from alteration improvement while repairs or replacements are
being carried out.
 Willful act of the insured.
 Loss or damage to machinery ,which are not listed in the list of
machinery insured.
 Damage caused arising from war, nuclear radiation.
 Shortage , destruction and spoilage to raw materials or semi-finished
products.
 Any restriction imposed by public authority.
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33. General Regulations
1.Rate: The insurers should not quote a rate lower than Rs.1.40 when they
underwrite new proposals in respect of fertilizer risks.
2.How policies are issued: Policies are normally issued on turnover basis
or it can be issued on output basis.
3.Extend MLOP cover on DG: Insurers can extend MLOP cover on DG
sets subject to adequate reinsurance support.
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34. 4. Increase in Sum insured:
If the sum insured is increased during the currency of the policy.
i) Short period scale of rates shall apply to increase amounts.
ii)If the policy is renewed thereafter for 12 months for an amount not
less than the increased sum insured, the difference of premium between
short period scale of rates and pro-rata rate may be refunded.
5.Minimum Time Exclusions:
i) 14 days for Power plants, fertilizer plants, petroleum refineries
etc.
ii) 7 days for all other industries.
General Regulations (Continue)
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35. 6. Rating: Rates will be decided at insurers discretion.
7. Rounding off rates: Premium rates shall not be rounded off in case of
MLOP policies.
8. Rules for cancellation: For cancellation of insurance during the
currency either wholly or in part:
i) At the option of the insurer, a pro-rata refund of premium may be
allowed for the unexpired term.
ii)At the insured's request, refund of premium may be allowed after
charging premium on short period scales.
General Regulations (Continue)
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36. Conditions:
 Alteration of working condition :
This policy shall be avoided due to:
1. The business be wound up by a liquidator or receiver or permanently
discontinued.
2. The insured’s interest ceases otherwise than by death.
3. Any alteration be made whereby the risk of an accident is increased.
 Policy Interpretation :
The policy & schedule shall be read together as one contract and words and
expressions to which specific meanings have been attached in any part of this
policy or of the schedule shall bear such specific meanings wherever they may
appear.
 Observance of policy terms
Observance of the terms, limitations and conditions of the policy shall as
far as the nature of them respectively will permit be precedent to any
liability of the Company. 36

37.  Misrepresentation or non-disclosure
This policy shall be voidable in the event of misrepresentation, mis-
description or non-disclosure in any material particular.
 Departmental clause
If the business be conducted in departments the independent trading
results of which are
ascertainable the provisions of clauses (a) and (b) of the limit of
liability shall apply separately to
each department affected by the accident.
 Access
The Insured shall afford reasonable facilities for representatives of
the Company to examine any
item of machinery.
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38. 8.Electronic Equipment Insurance
This provides omnibus coverage against all kinds of risks for
electronic equipment.
It provides protection against
1.Fire & allied perils
2.Burglary
3.Terrorism etc.
Sum Insured:
The sum insured shall be equal to the cost of replacement of the
insured by new property of same kind and same capacity.
The policy covers
1.Material damage
2.Damage to external Data Media.
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39. 9.Advance Loss of Profits Insurance
 This policy covers monetary losses (anticipated
earnings/profits) due to delayed commissioning of any project
as a result of a loss during construction/erection which is
covered under a project insurance policy.
 It’s also known as Business Interruption insurance.
 For whom the policy is suitable?
1. The principal who shall be deprived of the anticipated
earnings in the event of delay in commencement of operations.
2. The financial institutions to the extent of their interest in the
project.
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40. Costs covered:
1. Loss of gross profits – based on anticipated sales, cost and prices.
2. Loss of gross earnings – sales value of production less consumed
stocks, supplies and services purchased.
3. Increased cost of working – costs involved in minimizing the effects
of the delay.
4. Principal and interests – lending institutions interest in the portion of
gross profit.
5. Loss of rent – as a result of premises not being ready to earn rent.
6. Special expenses – costs involved because of delay such as
advertisement campaign etc.
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41. Benefits
1. The policy is operational during the whole or part of the
preparatory period of a new venture.
2. This policy covers loss of trading income, loan interest &
other charges.
3. There is a time excess of 30 days for this policy.
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