Who needs this solution
In practice, a CAR/EAR policy is needed by:
- main contractors – the construction contract may impose an obligation to maintain specific insurance cover;
- subcontractors – where the main contractor's policy does not cover them or covers them with a high deductible;
- clients and developers – so that the investment is protected regardless of who caused the damage;
- equipment suppliers and installation companies – for the erection and testing of process plant and machinery (EAR);
- bidders in public procurement – where the tender regulations require construction risks insurance with specific parameters.
The main risks on a construction site
| Risk | Example | Who bears the loss if there is no cover |
|---|---|---|
| Fire, explosion | The roof covering catches fire during hot works | The contractor – the works have to be reinstated at its own cost |
| Natural perils | A storm damages an unfinished structure, rain floods the basement | The contractor / the client |
| Theft and vandalism | Materials or installed equipment are stolen from the site | The contractor |
| Defective works with consequential damage | An incorrectly built joint collapses and damages work already completed | The contractor; a dispute with the subcontractor |
| Injury or damage to third parties | An excavation damages the foundations of a neighbouring building; a falling object injures a passer-by | The contractor – civil liability |
| Defects liability period risks | After handover, damage caused by the works comes to light | The contractor during the defects liability period |
What a CAR/EAR policy can cover
Depending on the cover chosen, the policy may provide for:
- Section 1 – material damage: the works, construction materials, temporary works, often also site equipment and the client's existing property on which the works are being carried out;
- Section 2 – civil liability: damage to third-party property or injury to health arising in connection with the works;
- extensions: defects liability period cover, debris removal costs, experts' fees, overtime and express freight costs, cross liability between the insured parties.
The exact cover always depends on the insurer's policy wording and on the special conditions set out in the policy – which is precisely why quotes have to be compared on their substance, not only on the premium.
What a standard quote often overlooks
These are points you can check in practice, which may be incomplete or differ between insurers when you review "off-the-shelf" CAR quotes:
- The defects liability period is not included or does not match the contract. In the construction contract the guarantee is often 24-60 months, but in the policy it is 12 or absent altogether.
- Existing property is not insured. In refurbishment projects the largest risk is often the client's existing building – a standard quote tends to leave it out or to cover it with a low sub-limit.
- No cross liability. Without it, claims between the insured parties (the client against the contractor, the contractor against a subcontractor) may be left without cover.
- Exclusions for earthworks, piling and vibration. In dense urban areas this can exclude the very liability risk that matters most – damage to neighbouring buildings.
- Sub-limits and deductibles for natural perils or for water damage, which only come to light at the moment of a claim.
- Conditions on suspension of the works and on seasonality. If the site "stands idle" over the winter, the policy may set requirements on security, heating and draining down – failing to observe them puts the claim payment at risk.
Decision table: what to check in a CAR/EAR quote
| Question | Why it matters | What to check in the quote | Consequences of not checking |
|---|---|---|---|
| Does the sum insured match the full contract value? | In the event of underinsurance the claim payment is reduced proportionally | Sum insured = the contract price for the works + materials + client-supplied items | Only part of the claim is paid |
| Who is the insured? | The contract usually requires the client and the subcontractors to be covered as well | The list of insured parties and cross liability | Some of the parties involved are left without cover; breach of contract |
| Does the period cover the whole of construction + the guarantee? | Damage tends to come to light during handover and the guarantee phase | The end date of the period, the type of maintenance cover (visits / defects) | Damage during the guarantee period has to be paid for out of your own funds |
| What are the limits and exclusions in the liability section? | Damage to neighbouring property can exceed the value of the site itself | The limit, vibration/groundwater exclusions, sub-limits | The largest claim is left uncovered |
| What safety obligations are imposed? | Failure to comply with those obligations may affect the insurer's decision on the claim or on its amount | Requirements on security, hot works and shutting off the water | A refusal on the grounds of a formal breach |
Information and documents needed for a quote
- The construction contract or its draft (the sections on insurance and guarantee requirements)
- The bill of quantities and the contract price for the works, the value of client-supplied items
- A description of the site: address, type of structure, construction, number of storeys
- The programme of works: start, handover, defects liability period
- Information on earthworks, piling, spoil heaps and adjacent buildings
- The main subcontractors and the types of work they carry out
- The history of previous losses
What affects the price and the terms
The premium is set not by a "tariff" but by an assessment of the risk: the type of structure and its construction (timber structures or highly flammable materials push the price up), the working methods (earthworks in dense urban areas, work at or near water), the construction period and the season, the deductibles chosen, the length of the defects liability period and the type of cover, the liability limit, and also the contractor's experience and claims history. It would not be right to name specific price ranges – they differ from project to project.
Typical exclusions
CAR/EAR normally does not cover: the cost of redoing the defective work itself (only consequential damage to other parts is covered), contractual penalties and losses from delay, wear and tear, design errors in the defective element itself, and losses arising from a deliberate breach of building regulations or of the policy's safety requirements. Some of these risks can be addressed with other instruments – for example, a designer's professional indemnity policy or surety bonds and guarantees.
How I work with construction risks
I start with the construction contract: the insurance requirements in it are often imprecisely worded, and an off-the-peg policy does not meet them. I then map the risks specific to the project, define the structure of the cover and request quotes from the leading insurers. I compare the quotes on their exclusions and sub-limits, negotiate the special conditions – and, if a claim arises, I represent you throughout the claims process.
A practical example
A typical situation (a generalised example, not a specific client case): a contractor is refurbishing a building in the city centre, built tight up against a neighbouring house. In the cheapest quote the liability section contains an exclusion for vibration and underpinning – precisely the risk that is the main one on this site. Through negotiation, the exclusion can be replaced with a sub-limit and a requirement to carry out a condition survey of the neighbouring building before the works start. Conclusion: the lowest price in this example would not reflect a material exclusion from the cover.
Frequently asked questions
How does CAR differ from EAR?
CAR (Contractors' All Risks) is intended for construction works – buildings and civil engineering structures. EAR (Erection All Risks) is intended for the erection and testing of plant and machinery – for example, production lines or power generation equipment. On projects that contain both elements, the more suitable form is chosen or the two are combined.
Who usually buys the CAR policy – the client or the contractor?
Most often the contractor, because the requirement is set by the construction contract. However, the client and the subcontractors are usually also included in the policy as insured parties – this has to be checked in each individual case.
Does a CAR policy also cover the defects liability period?
This can be provided as an extension, and its scope varies: the narrowest covers only damage the contractor causes during maintenance visits, the broadest also covers damage whose cause arose during construction. The type of cover has to match the guarantee requirements in the contract.
Does a subcontractor need its own CAR policy?
It depends on the main contractor's policy: if it covers subcontractors with a reasonable deductible, a separate policy may not be needed. If it does not cover them, or the deductible is large, the subcontractor's own risk remains open – I assess this before preparing a quote.
How long does it take to arrange a CAR policy?
If full information about the project is available, quotes can usually be obtained within a few working days; for larger or unusual projects it takes longer, because the terms are agreed individually.
Insurance broker, partner at SIA EURORISK. 18+ years in insurance. About me →
Methodology and sources
This page combines the Latvian legal framework with a broker's practice. The practical observations (for example, the typical gaps in cover) are Kristaps Račko's professional observations, not market statistics; the actual cover always depends on the chosen insurer's wording and the special conditions of the policy.
- Būvniecības likums, the Latvian Construction Law (likumi.lv) – the duties of the parties to the construction process
- Kristaps Račko's practice as a broker (18+ years) – comparing CAR/EAR quotes and assessing contractual insurance requirements
This page provides general information about construction and erection all risks insurance and is not individual insurance advice. Actual cover always depends on the chosen insurer's wording, the special conditions in the policy and your situation – we will assess those together before any decision.
Related solutions
- Answer: does a CAR policy cover a subcontractor's mistakes?
- Answer: does a CAR policy cover the existing building?
- Surety bonds and guarantees – bid, performance and maintenance bonds
- Contractors' plant and machinery insurance (CPM) for site plant
- Commercial property and business interruption insurance