Engineering Insurance Principles and Policy Framework
IC-88 tests engineering insurance as a specialised property/liability class covering construction, erection and operating risks. The exam expects you to distinguish project policies from annual operating policies, and to identify which loss triggers which cover.
Core rules
- Engineering policies are usually material damage covers; third-party liability and consequential loss need explicit extensions.
- Indemnity is normally on a reinstatement/new replacement basis, subject to the sum insured and deductibles.
- CAR/EAR policies run for the construction/erection period plus any agreed maintenance period; maintenance cover is not automatic.
- Typical exclusions include defective design/material/workmanship, wear and tear, corrosion, wilful acts, war/nuclear risks, penalties and consequential loss unless insured.
- Underwriting focuses on site conditions, flood/earthquake exposure, contractor experience, method statements, testing/commissioning and project value.
Worked example
A CAR policy insures a ₹50 crore project for 18 months plus 12 months’ maintenance, with a ₹1 lakh deductible. Flood damages completed works by ₹2 crore. Flood is covered, the loss is within the sum insured, so the payable amount is ₹2 crore minus ₹1 lakh, subject to policy terms. If the loss arose from the contractor’s defective design, the cost of rectifying that defect is excluded, though resultant damage to other insured property may be covered depending on the wording.
Traps
Do not assume contractor’s plant is insured under CAR; it needs CPM cover. Do not treat maintenance-period damage as automatic. Do not pay for the defective part itself when the exclusion applies. Do not confuse a project sum insured with the contractor’s annual turnover.