Contractors' All Risks (CAR) Insurance

What is 'Contractors' All Risks (CAR) Insurance'

Contractors' All Risks (CAR) insurance is an insurance policy that provides coverage for both damage to a property and third-party injury or damage claims. Contractors' all risk (CAR) insurance policies are considered non-standard insurance policies.

Construction projects typically involve two primary types of risk: damage to the property, and third-party claims of injury or damage. Damage to the property could include the structure not being properly constructed, or receiving damage during a renovation. Third-parties, including subcontractors, may become injured while working at the construction site. Contractors' all risk (CAR) insurance bridges these two risks into a common policy, and helps cover the gap between exclusions that would otherwise exist when using separate policies.

BREAKING DOWN 'Contractors' All Risks (CAR) Insurance'

CAR insurance is typically taken out jointly by both the contractor and the employer, with other parties such as financing companies having the option of being named to the policy. Because multiple parties are included in the policy they each retain the right to file a claim against the insurer, although all parties also have the duty of informing the insurer of any injuries and damages that may result in a claim.

The goal of using a CAR insurance policy is to ensure that all parties are covered on a project, regardless of the type of damage to the property or who caused the damage. Insurers who underwrite this type of policy lose the right to subrogation, meaning that if it pays out funds to one party in the contract then it cannot seek to recover those funds from another party in the contract. For example, if the owner of a large building and the contractor working on the building are on the same CAR policy, any costs of damage to the building caused by the contractor can be recovered by the building owner when a claim is filed. The insurer, however, cannot seek to recover funds from the contractor.

Risks often covered under a CAR policy include fire, flood, wind, earthquakes, water damage and mold, construction faults, and negligence. They typically do not cover normal wear and tear, willful negligence, or poor workmanship.

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Completed operations insurance is an insurance product that covers the liability incurred by a contractor for property damage or injuries that may happen to a third party once contracted operations have ceased or been abandoned. Completed operations insurance contracts are applied to construction products or the manufacturing of consumer goods and medicines. This type of coverage is often covered under general liability insurance, but sometimes is purchased by a contractor/manufacturer over and above general liability to cover loss or injury that occurs off the insured's property.

BREAKING DOWN 'Completed Operations Insurance'

Purchasing completed operations insurance is a method of having a third party assume risks related to a contractor’s finished work. Even though a contractor’s work is completed, loss prevention and commercial insurance coverage are still needed to relieve him of liability expenses. For example, six months after a roofing contractor finishes work at a bank, melting snow enters through the roof and ruins multiple network servers. A railing that a metalworker installed collapses when a person leans on it. The person falls 10 feet and suffers severe back injuries. An overhead door closes on top of a car. The owner seeks damages from the contractor who installed the door.

Importance of Completed Operations Insurance

A completed operations insurance policy helps a contractor settle claims while maintaining the financial stability of his business. The coverage ensures damages or injuries resulting from the contractor’s work are compensated at a reasonable level. Carrying this type of indemnity insurance means punitive damages assessed by a court may be settled.

How Completed Operations Insurance Works

The insurance company provides the contractor with legal defense and pays for any settlement or judgment resulting from accidents related to completed work. For example, the company pays for the restoration, repair or replacement of property when the contractor performs work incorrectly. The extent of coverage may address defects in the materials used to build the structure, or malfunction of the electrical or other internal system resulting in damage to the building or an occupant of the building. Some policies cover the contractor’s failure to provide owners fair warning about properly maintaining and managing the building and its systems.

Example of Completed Operations Insurance

A customer claimed a contractor’s negligent repairs to his residence resulted in bodily injury. The injury occurred at a location away from the premises, arose from the contractor’s work and happened after the work was finished. The insurance company covered the customer’s claim.