What is Engineering Insurance?
Be it the designing of a skyscraper, construction of a bridge, development of a residential complex or commissioning of a factory, construction projects face several challenges during its course which undermines its successful completion.
These may range from design errors to accidents at construction sites, where the potential for adverse financial impact is huge. Well, that is where “Engineering Insurance” can play a very indispensable role in offering protection to the stakeholders and professionals involved in the project.
Engineering insurance is a form of specialized coverage that offers comprehensive insurance protection to project owners, developers, construction contractors, architects, engineers, and other stakeholders and professionals involved in a project from financial losses arising from projects, no matter what stage they are in. Engineering insurance includes coverage against a vast range of contingencies, from loss or damage to contract works, plant, machinery, and equipment; project delays, and liabilities arising from third party property damage and third-party bodily injury.
Types of Engineering Insurances
1. Contractors’ All Risks Insurance
The Contractors’ All Risks Insurance (or Construction All Risks Insurance, as it is sometimes referred to) policy is designed to protect engineering projects primarily involving civil and infrastructure works. The policy offers coverage against material damage, i.e. loss or damage to the contract works. Coverage is on ‘All Risks’ basis, which means, the policy automatically covers ‘All Risks’ which the policy does not explicitly exclude. The policy can be procured by the project owner (Principal) or the contractor, to comply with the insurance and indemnity provisions of the underlying contractual agreement. The contractual obligations during maintenance period/defect liability period are also covered under the policy.
Policy can be issued on a project-specific basis; or on an annual basis or facility spanning a longer period to cover multiple projects undertaken by the Insured during the agreed period. In both cases, Contractors All Risks Insurance is usually bought with Third Party Liability coverage to protect against claims from third parties arising from property damage or bodily injury caused from the construction works and all other project activities. For instance, a claim from an injured pedestrian or the owner of a damaged car caused by debris falling from the project site. For such claims the insurance will pay towards the legal and defence costs in addition to the compensation awarded by the court.
The insureds under the policy normally includes the main contractor and subcontractors of every tier, the owner (principal) of the project, financiers (if any) involved and various other stake holders like architects, engineers manufacturers, suppliers etc. in respect of their respective rights and interests (if any) and for their on-site activities only.
2. Erection All Risks Insurance
The Erection All Risks Insurance policy is designed to protect contract works which predominantly include the erection of plant, machinery, and equipment, but also covers the associated civil works. Such projects range from erection of a single machine or a steel structure; to installation, testing and commissioning of large power plants.
Like Construction All Risks insurance, coverage is on ‘All Risks’ basis, which means the policy automatically covers ‘All Risks’ which the policy does not explicitly exclude. The policy can be procured by the project owner (Principal) or the contractor, to comply with the insurance and indemnity provisions of the underlying contractual agreement. The contractual obligations during maintenance period/defect liability period are also covered under the policy.
Policy can be issued on a project-specific basis; or on an annual basis or a facility spanning a longer period to cover multiple projects undertaken by the Insured during the agreed period. In both cases, Erection All Risks Insurance is usually bought with Third Party Liability coverage to protect against claims from third parties arising from property damage or bodily injury caused from the erection works and all other project activities.
The insureds under the policy normally includes the manufacturer of supplier if responsible for the erection work, contractor commissioning the erection or installation works, the owner (principal) of the plant or machinery being erected, financiers (if any) involved and various other stake holders like architects, engineers manufacturers, suppliers etc. in respect of their respective rights and interests (if any) and for their on-site activities only.
Importance of Engineering Insurance
1. Protection against Financial Losses
Probably the most obvious reason to secure insurance for projects would be protection for owners and all other stakeholders from huge financial losses emanated by lawsuits, delays in projects, and other disasters. Without adequate insurance, one mistake or accident could mean bankruptcy or closure. Insurance acts as a security blanket by assuring that the project, and professionals can continue in business even when hit by accidents and substantial claims.
2. Legal and Contractual Compliance
In most countries, insurance for engineering projects and the associated insurance for the professionals involved are not only a matter of prudence, but also a legal and contractual requirement. Failure to comply with the requirement would leave one open to penalties, lawsuits, or loss of professional licenses.
3. Risk Management
Prevention, minimisation and mitigation of risks is an intrinsic part of project management of any engineering project. Once the insurers consider insuring a project, they deploy specialized team of engineers who surveys the project site; recommend relevant risk improvement measures, and assists in the implementation of such risk management measures. These services are particularly provided by the insurers as part of their offering for large and complex projects.
Conclusion
Engineering insurances offer comprehensive and adequate protection against all risks involved in construction projects and in the erection of plant, machinery, and equipment, and against third party claims arising from property damage or bodily injury caused during the execution of the project.
Engineering insurance can be purchased by contractors, builders, architects, engineers, and other professionals involved in the construction industry to protect their interests in respect of the projects from various risks such as accidents, equipment breakdown and such other unforeseen events that can result in financial losses.
This is a highly specialized field of insurance, therefore requiring competent engineering insurance brokers to design tailor made insurance solutions most suitable to the project and addressing all risk exposures. Be it contractors’ all-risks insurance, equipment insurance, or any other type of risk mitigation instrument, the right kind of coverage is essential for properly managing the risks associated with engineering projects. Your best pick would be UIB Group, a globally acclaimed brand in the insurance and reinsurance broking industry for all classes of insurance.
Disclaimer
This article provides only an overview of the subject matter and is not intended to be exhaustive in any way. The content is for general information only, and should not be construed as legal advice on any subject matter. It is therefore, not limited or warranted in any way.
For more specific advices relating to your insurance needs, please contact us directly on enquiry@uibgulf.com.
