Turnkey Insurance on the long-term benefits of CAR/TPL policies

Understanding contractors’ all risks/third-party liability (CAR/TPL) policies could reap long-term benefits for the GCC’s construction sector

Luke Benfield is the chief executive officer of Turnkey Insurance Consultants in Dubai.
Luke Benfield is the chief executive officer of Turnkey Insurance Consultants in Dubai.

A contractors’ all risks/third-party liability policy – also known by its simpler abbreviation, CAR/TPL policy – aims to cohesively protect the interests of the contractor and its sub-contractors, as well as provide for the interests of the employer.

So far as possible, the policy must reflect the insurance requirements stipulated in the FIDIC [International Federation of Consulting Engineers] contract conditions without, of course, taking up any uninsurable responsibilities of the contractor.

Primarily, the CAR/TPL policy is split into two sections.  Section I covers contract works against an all risks cover, and Section II provides indemnity to the insured contractor against his liability towards third parties for accidental bodily injury caused to them, or for damage to their property as a direct result of the contractor’s negligence whilst carrying out contract works at the site.

Under the standard FIDIC conditions of contract, and specifically its Yellow Book – hereinafter called ‘FIDIC conditions’ – as part of Clause 18.1, it is a requirement that the CAR/TPL insurance is issued in the joint names of the contractor and the employer for their respective rights and interests.

It is a requirement that the policy is extended to include the joint insurance clause, which means that each party is insured for its respective rights and interests.

In addition, the cover should be extended to include a waiver of subrogation clause in favour of the sub-contractors, whereby insurers will not subrogate their rights after indemnifying the insured contractors for loss, damage, or liability incurred and caused by negligent sub-contractors.

The period of insurance under a CAR/TPL policy commences on the day that the contractor is officially handed the site of the contract in order to commence mobilisation and contract works. It expires on the date of issue of the taking-over certificate (Clause 18.2), assuming that there is no phased handover of contract works. On this date, the maintenance/defects liability period commences.

For each contract, the period of testing and commissioning – cold and hot – must be clearly understood by the insured contractors and their insurers.

Not only should the type and duration of testing and commissioning be indicated in the insurance policy, but the cover provided must also be clear, as certain contracts require testing and/or commissioning after contract works have been handed over, i.e. during the maintenance/defects liability period.

Following the completion and provisional handover of contract works, and assuming that there are no outstanding works to be completed during the maintenance/defects liability period, the contractor is obliged to comply with his maintenance obligations, which are usually for a period of 365 or 730 days.

The insurance provided during the maintenance/defects liability period varies a great deal, providing a number of options, among which are visits cover, extended maintenance, or guarantee maintenance, each under Section I or both sections of the policy.

It is of vital importance to understand that irrespective of the period defined in the CAR/TPL policy as the construction period, the policy automatically lapses – unless otherwise stipulated – if contract works or any parts thereof are taken over and put into use, service, or occupation.

Section I is regarded as the contract works insurance for any project.

Under this section, in addition to the total contract value – which is insured on full replacement value, according to Clause 18.2 of the FIDIC conditions – items that can be covered include free issue materials; property under custody and/or control; employer’s surrounding or existing property; plant and equipment; temporary buildings and/or temporary works; debris removal/ professional fees; and value-added tax (VAT). All these items must be in connection with contract works.

There are many more extensions that may apply to construction insurance policies – especially under Section II – and depending on the specific contract, these should be carefully considered. At all times, the benefit of cover should outweigh the financial burden of the premium cost.

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