Erection All Risk Policy Insurance

This type of insurance is especially useful for contractors, engineers, and project owners who are involved in industrial and infrastructure projects like power plants, refineries, and manufacturing facilities. Below is a breakdown of what an EAR policy typically includes:

Scope of Coverage

EAR insurance provides comprehensive coverage against a wide range of risks that may cause loss or damage during the erection and installation of machinery and equipment. This includes:

  • Material Damage: Covers accidental damage or loss to the insured property. Common causes include fire, lightning, explosion, theft, burglary, flooding, and damage during transportation and installation.
  • Third-Party Liability: Covers legal liabilities arising from damage to third-party property or bodily injury to third-party individuals due to the erection works.

Key Elements of the Policy

  • Period of Insurance: The coverage period starts from the unloading of the first consignment at the project site, continues through the storage, assembly, and erection phases, and ends when the project is handed over to the owner. This period can be extended to include testing and commissioning.
  • Insured Property: Includes machinery, equipment, plant, and steel structures that are to be erected or installed. It can also cover temporary structures like scaffolding, site offices, and even the raw materials used in construction.

Types of Risks Covered

Some of the typical risks that an EAR policy may cover include:

  • Fire, Explosion, and Lightning.
  • Floods, Storms, and Earthquakes.
  • Theft, Burglary, and Vandalism.
  • Collapse and Subsidence.
  • Accidental Damage: Such as damage during transportation, lifting, or installation.
  • Human Errors: Incorrect installation or faulty design (with some limitations).
  • Mechanical and Electrical Breakdown: During testing and commissioning phases.

Extensions of Coverage

EAR policies can be customized and extended to cover additional risks based on the project requirements. Some common extensions include:

  • Debris Removal: Covers the cost of clearing and disposing of debris after an accident.
  • Testing and Commissioning: Includes coverage during the phase where the equipment is tested to ensure proper functioning.
  • Surrounding Property: Damage to property surrounding the erection site that is not part of the insured project.
  • Transit Insurance: Covers damage to components during their transit to the erection site.
  • Maintenance Period: Covers risks that may arise during the initial maintenance period after project completion.

Exclusions

Like any insurance policy, EAR insurance comes with certain exclusions. Common exclusions are:

  • Normal Wear and Tear.
  • War, Terrorism, and Nuclear Risks.
  • Intentional Acts of Negligence.
  • Defective Design (unless explicitly covered).
  • Consequential Losses: Such as loss of profits or delays in the project unless a specific extension is taken.

Who Needs an EAR Policy?

This policy is ideal for:

  • Contractors and Subcontractors: Involved in erection, installation, and commissioning activities.
  • Project Owners and Developers: Who want to safeguard their investments during the erection phase.
  • Manufacturers and Suppliers: Of equipment and machinery who may be responsible for installation.
  • Engineering and Construction Companies: Undertaking large-scale infrastructure projects .

Benefits of EAR Insurance

  • Comprehensive Coverage: Protects against various risks during the project, providing peace of mind.
  • Risk Mitigation: Helps in managing unforeseen events that can cause financial losses.
  • Third-Party Liability: Protects against legal claims that may arise during the project.
  • Customization: Policies can be tailored to suit the specific needs of a project.

Claim Process

In case of a claim, the following steps are typically followed:

  • Notify the Insurer: As soon as the loss or damage is discovered, the insured should notify the insurer.
  • Survey and Assessment: The insurer will conduct a survey to assess the extent of the damage and determine the cause.
  • Documentation: The insured needs to submit all relevant documents, including project details, invoices, and proof of loss.
  • Settlement: Upon satisfactory review, the insurer will settle the claim as per the terms of the policy.

Conclusion

Erection All Risks insurance is a crucial tool for managing and mitigating risks during complex construction and installation projects. By providing coverage against various perils, it ensures the smooth progress of projects without the constant worry of unforeseen events leading to significant financial loss. For more information or to get a quote, it's advisable to consult with an insurance provider or a broker who specializes in engineering and construction policies.

Real-Life Examples of EAR Insurance in Action

Below are some practical examples demonstrating the importance of EAR insurance and how it can protect against unforeseen incidents:

Example 1: Wind Turbine Installation Project

  • Scenario: An energy company undertook a wind farm project to install several high-capacity wind turbines on a remote hillside. Each turbine had to be transported, assembled, and erected at specific locations.
  • Incident: During transportation to the site, one turbine blade was accidentally dropped due to a malfunction in the crane. The blade sustained significant damage, requiring immediate replacement. This incident also delayed the erection schedule.
  • EAR Insurance Coverage: The EAR policy covered the cost of replacing the damaged turbine blade, including transportation and labor costs for re-installation. The policy also included Delay in Start-Up (DSU) coverage, which compensated the energy company for the financial losses caused by the delay in operations.
  • Outcome: The insurance claim allowed the company to replace the blade without incurring severe financial losses. Thanks to EAR insurance, the project continued with minimal delays, and the company met its contractual obligations without additional expense.

Example 2: Oil Refinery Expansion

  • Scenario: A large oil company was expanding its refinery by adding several new processing units. The expansion project involved installing heavy-duty machinery, complex piping systems, and various critical components.
  • Incident: During testing, a valve in one of the processing units malfunctioned, leading to a minor explosion that damaged nearby equipment and piping. The explosion caused a delay in the commissioning phase and required significant repairs.
  • EAR Insurance Coverage: The company’s EAR policy covered the repair costs for the damaged equipment and piping. It also included a testing and commissioning extension, ensuring that the malfunction during testing was eligible for compensation.
  • Outcome: The insurance policy mitigated the financial burden of repairs and allowed the project to resume. Without EAR coverage, the company would have faced substantial expenses, potentially impacting the overall profitability of the expansion.