Defective design on a CAR policy: what is excluded and what is still paid
The exclusion is narrower than most contractors assume, and the difference is worth crores on a large project.
Contractors all risk policies exclude the cost of putting right defective design, material or workmanship. Contractors often read that as excluding the whole loss. Usually it does not.
The distinction
The defective part itself is excluded. Damage that the defect causes to sound, correctly executed parts of the works is typically covered, depending on which of the standard design exclusion clauses the policy carries.
Worked example
A badly cast beam fails and brings down a slab. The cost of recasting the beam correctly is excluded. The cost of rebuilding the slab it damaged is generally payable, subject to the wording.
Clauses to read before signing the project insurance
- Which design exclusion clause applies, and how broadly it is drafted
- Maintenance cover: visits only, or extended maintenance including damage caused during that period
- Testing and commissioning period, where much of the project risk actually sits
- Whether the policy covers plant hired in, and who insures the principal supplied items
- Whether advance loss of profit is required by the lender
Get the insurance terms agreed before mobilisation. Retrofitting cover onto a project already under way is slower, dearer and sometimes impossible.