The Process to Check if CAR Insurance is Required in LOA, BOQ and Construction Contract
Contractors All Risk (CAR) Insurance may be required for a construction project before work commences. Once the contract is signed it is almost up to date to be one part of the process but not the only one. The Contractor has to verify whether the policy meets the requirements as stated in the Letter of Award, Bill Of Quantities, tender conditions and construction contract.
Conflicting details can render an apparently valid policy inadequate. Examples may include the insured parties being named incorrectly in the policy, the sum insured based on a different premise, or a policy period that does not correspond to the project schedule.
The best way to settle concerns about an insurance requirement is to compare the contractual requirements with the actual insurance documents issued before they are treated as fulfilled.
A detailed guide is provided in which contractors, EPC companies, project owners and procurement teams can commence a step by step review of the CAR insurance requirements. The examples are for illustrative purposes, and the final decision should always be taken according to the term of the contract and the wording in the policy.
Car Insurance
Contractors All Risk insurance, more usually the referred to as CAR insurance covers insured construction work, in case of specified accidental loss of property or damage to insured construction works for the duration of the physical project. It may also cover third party liability depending on the policy.
Protection depends on the policy wording, insured property, coverage limits, deductibles, exclusions and endorsements. Under the cover of “all risk” not every loss, accident or financial cost is automatically covered.
A contract may ascertain who is required to arrange insurance, which parties will be insured, required limits, the date coverage has to commence etc.
Don’t forget this key principle: identify the needed insurance through the contract and compare with the policy documents to see whether or not the cover you set up is what is required.
1. Collect the Correct Project Documents First
The documents you need to identify the project’s insurance needs can be retrieved before reviewing the insurance quotation or certificate.
Letter of Award ( LOA)
The Letter of Award is a notification of work award and may hold important contractual conditions. It might be an indication that the contractor will have to apply for CAR insurance, or it can be a reference to detailed requirements during the tender process.
Check the LOA for:
Any contract or tender reference number.
The project owner or employer name.
The contractor’s legal name.
The mandatory insurance policies and coverage limits.
The due date on which the documents were due.
Construction start conditions that must be met.
Do not think that the LOA will state each requirement. It can be a reference to other documents of the contract.
Bill of Quantities (BOQ)
boat for quantities (BOQ) is basically a basic items of work and their respective quantities or values in terms of estimate and measurement. It can give the insurance team a glimpse of the project scope and overall financial value.
On the other hand, The BOQ total should not be automatically assumed to be the correct CAR sum insured. The policy may require a different basis of valuation, and the contract may detail how materials, labour, taxes, freight or other costs must be handled.
Look over the contract’s pricing provisions and insurer instructions for determining the sum insured about the BOQ.
Tender Conditions and Construction Contract
Read the insurance clauses relevant in its tender documents and signed contract. Inspect for requirements relating to insured parties, third-party liability, deductibles, policy extensions, maintenance periods, testing and commissioning, proof of insurance.
Compile all changes, revised work schedules, and written clarifications affecting the insurance requirements.
Insurance Policy Documents
Ask for the full policy schedule, what applies, the wording required by the contract and any certificates or other evidence of coverage.
A quote or insurance certificate may not contain every condition to be considered for coverage. A review of the whole documents provides you the best knowledge about what is really covered.
2) Create a Requirement by Requirement Checklist Every requirement of the policy has been listed and cross checked against the contract. Also, avoid relying on memory or just looking at the first page of the policy. Develop a quick reference comparison that captures the contractual requirement, the relevant policy detail, and actions to be taken.
This will be used for every requirement, with one of three statuses in whose body you placed it:
Matched: Documents that were found appear to be aligned.
Needs clarification: The wording or evidence is unclear or incomplete.
Mismatch: The documents don’t appear to line up and either require a correction to either the policy, or a written letter to the other party to correct.
For instance, if a contract requires a certain amount of liability limits, but the policy schedule indicates another limit, make note of this and seek clarification.
A certificate from the insurer does not automatically mean that the mismatch has been resolved. Contact the insurer/authorised insurance adviser and when necessary, obtain clarification from the project owner or the employer.
This very effective process can now allow the project team to address the gaps before these documents are forwarded for approval.
3. Verify the Insured Parties Listed In The policy
The first of the checks is watching if the parties named in the policy are the same as the parties engaging in the contractual arrangement.
Key in on the variables for each contract, which may involve more than one relationship, and includes the contractor, project owner, principal, the joint venture or other parties. One cannot expect every party involved in the project to be insured.
Which of these details to consider:
-The contractor uses their complete legal name.
-Any subordinate joint venture or consortium listed under the project.
(If relevant) The title of relevant subcontractors or other parties.
Any other party mentioned specifically in the contract.
Shortened registered names may not be the same as the trading name. While a short form may seem familiar to the project team, it should not be automatically treated as known to them.
Example
A certain contract mandates the insurer to insure both the parties the employer and the primary contractor. Assume the policy schedule mentions only the contractor.
Do not assume the project is in the policy just because the project name is listed. Inquire from the insurer whether the specified arrangement exists, and provide the appropriate documentation if necessary.
4. Verify the Project Name, Location and Scope of Work
Proponents can work on several projects at the same time, the policy must therefore identify the insured project or location correctly.
Compare the project description in the policy to LOA, construction contract. Check site address, contract reference, nature of work and any other locations included in the project.
Ask the insurer how to represent infrastructure projects with multiple sites or expanded work areas, and whether the issued policy covers these locations.
When inspecting the work scope, look especially closely when you are dealing with a project that may have a number of activities, proven civil construction, structural works, installation, testing, or commissioning work.
Just because an activity is part of the overall project does not mean it is actually covered.
For work completed after the coverage has been issued, verify whether the change have to be notified to the insurer and documented via an endorsement or other written confirmation.
5. Review the Contract Value and Sum Insured
A BOQ can help to establish the overall financial picture of a project but the BOQ total and the CAR sum insured do not have to be the same thing in every contract.
First, you must identify the valuation basis required by the contract and insurer, then compare that to the basis in the policy schedule as well as the supporting project documents.
The calculation, subject to the contract and policy, may need to cover:
Contract works and materials as part of the insured project.
Labour & other costs incoured under the applicable valuation basis.
Materials supplied by the employer where required.
Freight, duties, or otherwise caused costs.
Any separately insured property or limits.
This is not a one size fits all formula. How you manage these costs is determined by the contract and policy wording. Rather than adding or subtracting cost components on the basis of speculation, state per solution the insurer how has the sum insured been calculated?
Illustrative Example
Assume a construction contract in the realm of imagination carries a BOQ value of ₹8 crore, but a sum insured on the policy schedule is ₹6.5 crore.
Such dissonance is an impetus for drilling into the issue, and not an automatic determinant of policy inadequacy. The two numbers could be grounded in different valuation bases, or there may be distinctions in the assessment of some items.
Only after comparing the underlying calculations, contractual requirements and the insurer explanation, should the sum insured be considered for revaluation.
The objective of the approach is to verify a transparent and defensible link between the required total insured value and the amount exported in the policy.
6. Review Material Damage and Third-Party Liability Separately
CAR insurance can provide numerous categories of cover. The overall sum insured is not proof of compliance with every section of the contract.
Material Damage Cover
Identify the construction works, materials and other property that are insured. Verify that required project is described in the policy and that limits and policy period agree with the contract.
Look through the exclusions and discounts for the work specifically covered by the policy. Review the special condition and endorsements also that may apply to the work.
Third-Party Liability Cover
Check if the contract requires third-party liability insurance and the limit and conditions, if applicable.
Look at the policy schedule for the required limit and compare it with the amount listed. Which liabilities and interest parties are covered and are there exclusions or deductibles adversely affecting the coverage?
Check that you do not rely on the same sum insured for material damage and third-party liability limits. These must be reviewed separately.
If the contract calls for a particular limits or insurance structure of some sort, verify the policy issued matches this.
7. Make Sure the Policy Start Date and End Date Correspond to the Contractual Schedule and Project Milestones
Look to insure dates against the contractual schedule, not the estimated completion date.
Check the relevant project milestones with the policy period (start of work, construction, testing, handover and the period for needed maintenance)
Review the policy wording to identify the dates upon which coverage commences and terminates. The dates listed on a schedule may not clarify every query as to whether a given activity or item of property is covered.
When a project is delayed, the original policy end date may be out of phase with actual work.
Do not assume the policy is automatically extended. Contact the insurer before expiry and get written confirmation of any extension needed.
You should consider if testing, commissioning or maintenance is singled out, what special conditions apply, and what stages of the contract require cover to continue.
8. It is Easy to Misread: Exclusions, Deductibles, and Other Crucial Issues in Letting Deteriorate
There may be conditions adverse to the contractor’s real risks inside a policy that may look as though anything related to the contractor could be included.
The policy wording may contain exclusions, sub-limits, or it may not (where applicable), warranties, special conditions and tasks that must be carried out by the insured person.
Some elements that are heavily worded areas of concern might be wear and tear, substandard design or materials, consequential loss and wilful negligence. There is variation from policy to policy as to how these terms are dealt with, so they should not be read without the relevant wording.
Ad questionaire to the insurer or an insurance advisor:
Does the contract demand a particular extension which does not appear in the policy schedule?
Does the insurer allow this activity to be included into the contract / limited special condition?
Which deductible, if any, is applicable to a relevant section or type of loss?
Is there a non-excess loss against which the loss limits are the reaps of the policy?
Set a maximum amount or restricting your right to do so up to your maximum deductible stated in the contract.
Will it provide coverage against testing, commissioning and maintenance exposures as required?
If you believe it is covered but contradictory to a policy exclusion, get written confirmation from the insurer and the contract administrator.
Assume nothing without the covering operator.
9. Check the Policy Against the Tender Requirements
An insurance certificate can support your review, but it may not include all the details needed to confirm the contract is met.
Compare the tender requirements with the policy, one clause at a time. Note each contract clause, the relevant policy section and any endorsement that supports the required cover.
For example, if the tender sets a minimum limit for third-party liability, record that amount alongside the limit shown in the policy.
If the contract says the employer must be insured in a particular way, check the policy’s actual wording. A general statement on the certificate may not be enough.
Follow any approval steps set out in the contract, including approval of the insurer, policy format, coverage limit or proof of insurance.
Ultimately, compliance may depend on the policy wording and the employer’s requirements—not just the insurance team’s internal assessment.
10. Keep a Written Record of Unresolved Differences
An effective review of an insurance pack should result in an action list not simply a checked document.
Unresolved item:
Describe the issue.
Specify the relevant document and chapter.
Explain what needs to be clarified or amended.
Personnel follow up.
The resolution deadline.
Send the easy to understand questions to the insurer or authorized adviser. If it pertains to a contractual requirement, request confirmation from the employer or project owner in the correct communication channel.
Strictly hold on to the final policy schedule as well as all wording that is relevant that relates to the policy, endorsement certificate and any of the relevant correspondence and required written approval.
This record enables the project team to show what they reviewed and what issues were resolved. That does not mean that claims will be accepted and that all contractual obligations are met.
Common mistakes to avoid in car insurance arrangements
Project reviews can also be plagued by a number of common, avoidable mistakes.
Considering just the premium alone: A lower quote does not mean a policy will qualify the contract. When doing so, it is important to also evaluate the coverage, limits, deductibles, exclusions, conditions and cost against that same quotation.
Relying on an archaic tender document: The terms in this document may have changed with the revised LOA, addendum or approved scope change. Use the current available documents and keep track of amendments.
Believing all CAR policies are the same: Policy wording, limits, endorsements and conditions: may also all be different. Verify what the actual policy issued will be.
Disregarding the maintenance period: The term of each contract will have a maintenance period when coverage may be needed. Find out whether there is a relevant extension in the policy, and if so under what conditions.
Rolling extensions to the last minute: Work often continues beyond the scheduled policy expiration period due to construction delays. Take any necessary steps before the existing coverage expires, such as reviewing dates early and ordering all required extensions.
Certificate is a full review: The certificate may not identify all exclusions or conditions. The entire documents must be reviewed and written clarification sought if required.
Questions to Ask Before the Policy Is Finalised
To prepare the final arrangement with an insurer or a direct insurance broker, make sure you can answer these questions:
Have we used the latest LOA, BOQ, tender conditions and contract amendments?
Are the insured parties and project location correctly stated?
Is the sum insured based on the appropriate contractual and policy valuation method?
Do material damage and third-party liability limits meet the specified requirements?
Are the deductibles, exclusions and special conditions acceptable under the contract?
Are testing, commissioning and maintenance requirements addressed where applicable?
Proposed policy dates should fit within the project timeline and milestones, including any period that may be out of scope.
If you have found and highlighted the issues, then have they been solved or have been formally referred for clarity?
Does the contract give the proper form of “proof of insurance” documents (e.g. final policy documents, evidence of insurance).
If you’re unsure about any answer to these questions you need to be certain that the answer is correct before concluding that the insurance requirements have been met.
Frequently Asked Questions
1. Is CAR insurance mandatory for every construction project in India?
There is no one-size-fits-all answer Any project may or may not require a contractor to procure CAR insurance, the statutory requirements, the terms of a tender, the contractual provisions and project conditions play into it.
You should check the specific requirements, as one cannot just say that every construction project has an obligation to take out some insurance.
2. Is the BOQ value the same as the accurate CAR sum insured?
Not always. The BOQ is one source of key project cost information, but the suitable sum insured is based on how the contract valuation is carried out and how it was done in the policy based on the contract.
Consider what costs must be included and reviewed how your insurer has computed the declared value.
3.Gives a CAR insurance certificate guarantee that the contract requirements are satisfied?
Not always. Insurance could be a certificate, but not all policy conditions, exclusions, limits and endorsements needed to gauge adherence.
Check the contract along with the full policy documents and supporting endorsements, you will find a difference between what is stated in terms of conflicts, conditions and conditions.
4. Does CAR insurance cover project delays and contractual penalties?
There is no set rule that it will. Physical damage coverage is not same as being protected against coming into liabilities owing to delays or contractual penalties. You need to read the wording of the policy (and any specific addendums or extensions to it). Having CAR insurance does Not mean that the contractual penalty is automatically insured.
5. Is it possible to extend a CAR policy if the construction work is delayed?
An extension is possible, given that it meets the insurer’s approval and the terms which apply.
Before the policy that is due to expire contacting the insurer, give the new schedule. Seek confirmation of any extension in writing. It does not automatically extend.
6. What should a contractor do if the agreement does not conform to the LOA?
Describe the specific area you are unhappy with and provide it to insurer or authorized insurance adviser.
If the matter concerns a contractual requirement pursue the appropriate process to obtain clarification from the hiring entity or the project owner. Keep the matter open until you receive the appropriate documentation or written solution.
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