CAR Insurance: Insuring the Works vs Insuring the Owner's Property

by White & Case LLP
Contact

White & Case LLP

For the purposes of insuring construction and engineering projects, there is a critical and sometimes overlooked distinction between insuring the works carried out under the contract, and insuring the underlying property of the employer. A recent Privy Council case considers this distinction.

Contractor's All Risks (CAR) Insurance

CAR insurance is intended to cover accidental physical damage to the contractor’s works being built and any associated temporary structures. Accidental damage typically covered under a CAR policy includes, amongst other things, damage caused by fire, flooding, storms, burst pipes, vandalism and theft. A CAR policy usually covers several parties as identified in the policy, and ends at the practical completion of the works.

The property covered by a CAR policy will be the works under construction, which ultimately will be taken over by the owner on practical completion. So if the works are damaged by fire, the CAR policy should cover the cost of reinstating the works. But what happens where the contractor’s works become integrated in the owner’s pre-existing property, as may be the case in a fit-out or a renovation project. Will the owner’s property also be covered by the CAR insurance? This was the issue considered by the Privy Council in an appeal from the Bahamas.

Sun Alliance Ltd v Scandi Enterprises Ltd [2017] UKPC 10

The relevant facts were as follows:

  • The project in question concerned the renovation of an existing building of 12 units. As the building was unoccupied, the employer took the decision not to insure it, but instead took out a CAR insurance policy, presumably in the expectation that it would cover the whole building.
  • The property insured under the policy was described as the "Contract Works", insured in the sum of BSD$700,000.
  • The CAR policy were largely in standard terms, with one exception, namely that the owner of the building was the sole party insured. The owner intended to carry out the work by directly employing small firms and workmen.
  • A fire occurred during the course of construction, causing extensive damage to the building. At the time of the fire the only works carried out were renovations to 2 of the 12 units and minor plumbing and electrical work in the building. The value of these works was less than BSD$5,000 in total. By contrast, the damage to the pre-existing building was of a greater magnitude.

The key question before the Privy Council was whether damage caused by the fire to the pre-existing building was covered under the CAR policy.

Privy Council Decision

The Privy Council stressed that express terms of an insurance contract, where clear, must be applied. In this case, it was clear from the policy that the "Contract Works" were insured, but not the pre-existing building itself. The result, therefore, was the owner was entitled only to recover under the CAR policy for the value of the fire-damaged works (the value of which was modest), and not for the more extensive damage to the building itself.

Conclusion

The case provides a salutary reminder of the role and limits of CAR insurance. A CAR policy covers physical damage to the contractor’s works, but does not cover damage to the underlying property. A separate property insurance policy should be taken out to cover damage to any pre-existing property of the employer.

  • The distinctions between these forms of insurance are, helpfully, reflected in standard forms of construction and engineering contracts. For example, under the FIDIC Red Book (1999):
  • The requirement to insure "the Works" is set out in Sub-Clause 18.2; and

The requirement to insure against any loss of or damage to "physical property" (with the exception of the property covered under Sub-Clause 18.2) is addressed under Sub-Clause 18.3. Such "physical property" would include the property of the Employer, such as a pre-existing building.

Insuring a construction or engineering project does not usually involve taking out a single policy to cover against all risks and eventualities. Perhaps an "all risks" policy may, by its name, create the initial impression that it operates in such a way. But as this Privy Council case illustrates, it is the detail of the policy which matters.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© White & Case LLP | Attorney Advertising

Written by:

White & Case LLP
Contact
more
less

White & Case LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.