Just as important as it is to ensure that Contractors All Risks (“CAR”) cover is adequate and aligns with the insurance requirements of the underlying construction contract, it is important for the purposes of ongoing insured projects to ensure that such cover remains in place and is continuous in the event that a decision is made not to renew annually renewable CAR policies, or to cancel such policies, and to substitute one insurer for another.
Decisions not to renew such policies, or to cancel such policies, and to substitute insurers, are often made on the assumption that ongoing insured projects will automatically remain covered under a substituted policy, or that the prospective insurer will agree, albeit on terms to be agreed, to include ongoing projects under the substituted cover. No such assumptions should be made, as this can result in a no cover situation for ongoing projects.
There is no one standard wording for annually renewable CAR cover. That applies equally to how the policies provide for both run-off and run-on cover. Each insurer will have its own wording. The requirements for run-off and run-on cover are most often found in the policy schedule.
How do the policies deal with this aspect?
- No run-off cover for ongoing projects – all cover expires at renewal date or date of policy cancellation.
- Run-off cover is contemplated, but cover will lapse automatically if certain policy requirements and conditions are not met or complied with.
- No run-on cover for ongoing projects – the substituted policy excludes projects which commenced prior to inception of the substituted policy.
- Run-off cover is automatic but either inclusive or not inclusive of maintenance cover provided that the project is awarded or put out for tender prior to renewal date, or/and the project commences within a period of anything between 30 and 90 days after renewal date and also, provided that a detailed list of ongoing projects is submitted before the renewal date, or within a prescribed period after renewal date.
- Run-off and run-on cover (but either inclusive or not inclusive of maintenance cover) will be accommodated on disclosure of a detailed list of ongoing projects, but on new terms to be agreed.
Continuity of cover requires careful consideration when a decision is made to change insurers. Such decisions cannot be based solely on price. An insured must take into consideration whether the existing policy makes provision for run-off cover and/or whether the replacement policy accommodates run-on cover (and whether such respective covers are inclusive or exclusive of the maintenance period).
Where these options are available, an insured must ensure that all requirements, as provided for in the policy, are complied with. These requirements are generally clearly articulated in the respective policy wordings/schedules, but as a precaution should always be specifically raised with the insurers.
Where the prospective insurer is prepared to entertain run-on/run-off cover, the insured will generally be required to provide a detailed schedule of all ongoing projects.
We continue to see gaps in cover where an insured has failed to provide a complete schedule of all ongoing projects. Substituting one policy for another ought to be a straight forward process, as a schedule of all ongoing projects ought at all times to be kept updated. This necessarily follows from an insured’s obligation, most often found under a premium adjustment clause in the policy, to declare to the insurer an annual contracting expenditure at renewal.
The trend in the construction insurance market is to combine into the annual CAR policy an insured’s usual/standard type projects having a shorter contract period, and to insure larger non-standard projects having a longer construction period under a once off/specific policy, so as to ensure that run-off cover in respect of such risks, does not become problematic in due course.
For more information contact:
Keith Barlow-Jones, Managing Executive: Engineering
C&G a division of Guardrisk Group