This document discusses various types of engineering insurance policies that provide coverage for construction and operational projects. It outlines policies that cover risks during the construction phase such as Contractor's All Risk policies, and policies that cover risks during the operational phase such as Machinery Breakdown policies. Specific perils, exclusions, and benefits are described for different policy types including policies for construction projects, erection all risk, and contractor's plant and machinery. Defective design exclusions for Contractor's All Risk policies are also explained.

1. Engineering Insurance
Trust insurance Brokers private limited
Kalikasthan, Kathmandu

2. Introduction
• Insurance that provides economic safeguard to the risks faced by
ongoing construction projects, installation projects, machine and
equipment in project operations
• Divided into two types:
• Construction Project
• Operational Project

3. Infrastructure development
• Construction of airports to bridge
• Dams to tunnel to offshore structure
• Refineries to reservoirs
• Pipelines to power stations
• Factories to hospitals
• Hospitality Industry

4. Exposure to the projects
• Physical losses involving accidental breakdown, repair, replacement
and loss of production
• Financial losses in terms of loss in revenue generation
• Third party liability affecting a number of parties directly affected by
the construction of such projects

5. Origin of Engineering Insurance
• In about 19th century, there were about 500 steam engines of modest
output capacity at the operation
• Due to the use of steam boilers, chances of boiler explosion was high
which resulted into heavy losses to property and personal injury
• To minimize the financial loss, insurance of the steam engine was
introduced which later expanded into other forms of constructional
activities/projects
• Engineering Insurance further developed involving technical experts
in the areas of risk management

6. Stages of Engineering Policy
• Two stages of engineering insurance policy
• Construction Phase Insurance Policy
• Contractor’s All Risk Policy
• Erection All Risk Policy
• Marine cum Erection Insurance Policy
• Operational Phase Insurance Policy
• Machinery Breakdown Insurance Policy
• Boiler and pressure plant insurance policy
• Inherent defect insurance policy
• Loss of profit insurance policy

7. Construction Phase Insurance Policy
• Perils Covered
• Fire, Lightning, Explosion, Flood and Inundation
• Earthquake, Landslide, Subsidence, Theft and Burglary
• Collapse/Impact damage
• Riot strike damage, malicious damage, sabotage and terrorism
• Accidental damage, bad workmanship
• Exclusions
• Amount of loss shown as deductible
• Loss discovered at the time of inventory or initiation of the project
• Penalties, fines and other such consequential damages
• Loss due to faulty design

8. Operational Phase Insurance Policy
• Insurable Property Includes:
• Boilers
• Electrical Equipment like generators, switch gears, transformers, etc.
• Mechanical Plants like engines, turbines, etc.
• Lifting equipment like cranes, conveyors, lifts, winches, etc.
• Perils Covered
• Electrical perils like short circuits, insulation failure, etc.
• Mechanical perils like faulty materials, designs, casting, explosion, etc.
• External perils like entry of foreign debris, impact, collision, etc.
• Exclusions
• War and nuclear risks
• Experimental loss due to over loading or tests

9. Contractor’s All Risk
• The Contractor’s All Risk policy offers comprehensive cover by
covering risks which may arise during construction period
• It offers covers for public liability, own plant, contract works, hired-in
plant and employee’s tools and gives financial protection to the civil
engineering contracts in the event of any accident

10. Benefits of Contractor’s All Risk
• Material Damage:
Under this loss, damage, or destruction of property incurred due to
any cause other than those excluded in policy are covered
• Most of the policies pay for the losses or damage up to a certain
amount that does not exceed the sum mentioned against every item
and does not exceed the total sum insured
• Third-Party Liability coverages:
• Legal liability related to accidental damage or loss caused to the property of
third-person
• Legal liability for non-fatal and fatal injuries caused to third-person (other
than the own employees or workers of the insured) due to the construction of
the property

11. Coverage
• Perils that are covered under contractors all-risk policy are:
• Fire and allied perils
• Collapse
• Earthquake, shock, and fire
• Faults in construction
• Storm, flood, cyclone, and tempest.
• Negligence and human errors
• Water damage

12. Defective Design Exclusions
• In recent years it has become commonplace for contractors to incur a
design liability, either by offering a design service as part of an overall
building package or through a design and build contract where the
design work is sub-contracted
• When you undertake contracts on a Design & Construct basis, you will
almost certainly be the client’s first port of call in the event of a
design related problem
• Even if a claim is ultimately the responsibility of another party, the
costs of redirecting liability can be high and success is far from
guaranteed

13. Defective Design Exclusions
• DE1: Outright Defect Exclusion
• Excludes any and all damages due to property in a defective condition
• DE2: Extended Defective Condition Exclusion
• Excludes damages to
• (a) property that is in a defective condition
• (b) property that relies on (a) for support
• Consequential damage to any other property free of defective conditions, however,
is covered.
• DE3: Limited Defective Condition Exclusion
• Excludes damages to property that is in a defective condition, in whole or in part;
covers consequential damage to any other property free of defective condition

14. Defective Design Exclusion (cont….)
• DE4: Defective Part Exclusion
• Excludes damage to only that constituent part of the property that is deemed
defective (the “faulty part”); covers consequential damage to any other
property free of defective condition.
• DE5: Design Improvement Exclusion
• Covers all damages excluding only the additional costs of improvements to
the original design, materials, etc.

16. • Example: The Insured design and build a steel framed building,
roof completed, cladding partially completed and the dwarf
brick wall completed. The nuts & bolts used in the
construction of the steel framework proved to be inadequate
(due to the Insured’s error). One entire wall collapses (frame,
cladding & brick wall) and the roof is damaged beyond repair.
• What is covered under the CAR DE clauses?
• DE1: All damage excluded.
• DE2: All damage excluded other than dwarf brick wall.
• DE3: Steel framework excluded. Cladding & roof is covered.
• DE4: Only the nuts & bolts are excluded.
• DE5: All damage covered (but not costs of improving the nuts &
bolts).

17. Erection All Risk
• The erection all risk insurance covers loss or damage to projects that
involves erection/installation of plant, machinery and equipment
ranging from erection of a single machine to a large power plant
• It protects a contractor or employer against physical loss or damage
to the contract works, construction plant and equipment or
machinery
• It also includes cover for damage to property of third parties and
bodily injury to third parties

18. Benefits of Erection All Risk
• It offers a comprehensive cover against all the risk involved in the
• Storage
• Erection
• Testing and Commissioning
of machinery & plant pertaining to various Industries

19. Coverage
• EAR cover begins from the time of unloading of the first consignment at
the project site and terminates on completion of testing or handing over of
the project to the principal employer, or the period chosen, whichever is
earlier.
• The following are the eventualities against which you are covered:
• Fire, lightning, explosion, aircraft damage
• Riot, strike, malicious act
• Flood, inundation, storm, cyclone and allied perils
• Landslide, subsidence and rockslide
• Burglary and theft
• Faults in erection
• Human errors, negligence, lack of skill
• Short circuiting, arcing, excess voltage
• Collapse, damage due to foreign objects, impact damages

20. Conditions for CAR and EAR Policy
• Alteration of working condition :
• This policy shall be avoided due to:
• The business be wound up by a liquidator or receiver or permanently
discontinued.
• The insured’s interest ceases otherwise than by death.
• 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.

21. Conditions
• 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
• 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 ofliability 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.

22. Contractor’s Plant and Machinery
• The policy broadly covers loss or damage to the contractor’s following
mobile equipment against an accident arising out of external perils

23. Scope of CPM Policy
• Road Rollers
• Concrete mixer, concrete pumps
• Pavers for asphalt or concrete finishing
• Cranes, Lifting equipment and drilling equipment Road surfacing equipment
• Vibrators
• Chain blocks, pulley blocks
• Site power-generating plant
• Mobile mixing plant
• Hauling equipment
• Excavators and loaders
• Earthmoving equipment: Bulldozer, grader, scraper, excavator, loader, dumper, etc
• Batching plant for the production of concrete of asphalt
• Bitumen tank sprayers

24. Benefits
• At any plant site, the contractor is completely dependent on the machinery and
plant work
• Physical loss or damage to these equipment can lead to heavy loss as they require
huge investments
• This insurance can keep the contractor relaxed because his/her machinery and
plants are protected against any damage or loss
• Some key benefits are as follows:
• Coverage against damage and loss to insured plants and machinery or equipment of
construction due to an accident that arises because of external perils such as accidental
damage, fire, burglary, riot, etc.
• Most CPM policies cover the replacement of the machinery based on its current replacement
price.
• It provides the contractor the freedom to select the plant and machinery & equipment of
his/her site of work.

25. Coverage
• Fire and Lightning
• Accidental damage like defective workmanship and material, lack of
skill, Negligence, Malicious act or Human error
• Water damage, Flood, Storm, Tempest, Inundation
• Collapse, Collision, Impact
• Theft & Burglary
• Subsidence, landslide, Rockslide

26. Machinery Breakdown
• Machinery breakdown insurance provides a protection cover to the
machines used by factories and industries
• This insurance covers accidental breakdown and physical damage of
the machinery and the cost of repairs or replacement of the damaged
machine part
• In practice, the premium is charged on the reinstatement value and
the claim is admissible under depreciated value

27. Scope of Machinery Breakdown
• Mechanical: All types of Mechanical industrial plant like compressors,
pumps, turbine engines, turbines (steam, water & gas), blowers, machine
tools, presses and refrigerators etc.
• Electrical: All types of electrical machines like a transformer, electrical
motor, alternators & generators, motors, rectifiers and switchgear etc.
• Process machines: All types of Process machines in such industries as cold
storage, engineering and metallurgical, paper/ pulp making, printing,
rubber/ plastics and textiles
• Stationary: All Stationary equipment can be covered
• The protection is offered for machines both in working and in rest
condition
• Some other conditions are when dismantled or moved or re-assembled for
cleaning, inspection or repair

28. Coverages
• Machinery breakdown due to short-circuits, excess voltage, and electrical
faulty design, faulty material, and faulty casting that manifest after the
warranty period due to electrical and mechanical breakdowns
• Abnormal operating conditions of the machine
• Falling, impact and collision resulting in breakdowns
• Carelessness and lack of operating skills in the operations and management
of machinery
• Turbines bursting, compressors, hydraulic cylinders or other apparatus
which is subjected to centrifugal force or internal pressure
• Damage or loss due to initiation of fire from within the machinery is also
included which is generally excluded from the standard fire protection
policy

29. Special Exclusions of Machinery Breakdown
• Fire and allied perils, theft, etc.
• Loss or damage as a result of to overload experiments
• Gradual development of abnormalities, defects, cracks etc. in any part
being ignored regularly in spite of knowing it demands repair
• Regular wear and tear of the machinery
• Pre-existing faults or defects in the machinery before the policy
commencement
• Loss of use of the machinery due to conditions in the plant or factory or
any other kind of consequential loss incurred by the insured
• Loss or damage because of explosions in chemical recovery boilers
• Damage to belts, chains, ropes, rubber tyres or any other exchangeable
tools unless any loss or damage to the machinery is indemnifiable