Collapse of an elevated corridor span: CAR policy, defective design and the scope of rectification costs
A highway contractor is executing a ₹140 crore elevated corridor for a state authority, under a contract that requires the structure to be handed over at the specified concrete grade. The work is insured under a Contractors' All Risks policy with a works sum insured of ₹25 crore, the standard design-and-construction endorsement and the LEG 2 defective-design exclusion. While span P-14 is being launched on a temporary launching girder, the girder fails and the span collapses, killing one worker and destroying the girder. Investigation shows that the girder was designed by a specialist sub-contractor whose load calculations understated the wet weight of the concrete. Separately, non-destructive testing of the already-completed spans P-12 and P-13 shows concrete ten points below the specified grade. The authority directs the contractor to demolish and rebuild spans P-12 to P-15 at ₹18 crore, of which ₹6 crore relates to the collapsed span and the balance to the standing spans. The contractor claims ₹18 crore, ₹1.5 crore for the girder and ₹4 crore for the worker's dependants.
1. How should the ₹18 crore be apportioned between what the CAR policy covers and what it does not?
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The starting point is the LEG 2 exclusion, which removes loss or damage to the insured works caused by defective design, and the carve-back that follows it: the exclusion does not extend to loss of or damage to other parts of the insured works resulting from the defective part. That carve-back is the whole case.
The girder's understated load calculation is a design defect. The girder itself, and the cost of putting right the defective element, are outside the cover. But the collapse of span P-14 is physical damage to a different part of the insured works, directly caused by the defective girder - that is inside the carve-back and is payable, subject to the sum insured and the excess. Within the ₹6 crore for the collapsed span, split further: the cost of demolishing and removing the debris, and rebuilding the span to specification, is the measure of indemnity; any element that is in truth the cost of correcting the girder design is not.
The ₹12 crore for spans P-12 and P-13 is a different matter entirely. Those spans have not suffered any physical loss or damage; they are standing, and the concrete is simply below grade. A latent defect, a failure to comply with specification, or the cost of bringing work up to the contractual standard is not an insured peril - it is a quality defect and a contractual liability of the contractor to the authority. The demolition and rebuilding of sound but under-strength spans is rectification and betterment, excluded both by the defective-work exclusion and by the general principle that the policy indemnifies damage, not the cost of achieving the specification.
So the CAR section responds to roughly the ₹6 crore collapsed span (less the defective girder element and the excess) and not to the ₹12 crore.
2. The contractor argues that because the policy covers collapse as a peril, the NDT findings on P-12 and P-13 must also be payable. How do you answer, and where else might the contractor look for recovery?
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The argument confuses a peril with a state of affairs. A CAR policy insuring collapse responds when the works physically come down, wholly or in part, as a result of a fortuitous event. It does not respond to a finding that the works, while standing, are weaker than the specification demands. Nothing has collapsed in P-12 or P-13; there is no damage, only a non-conformity. Paying for demolition and rebuild of undamaged but sub-standard work would also offend the indemnity principle, because it places the contractor in a better position than performance of the contract would have done.
There is a further problem for the contractor: the policy requires prompt notice and, typically, that the insured take reasonable precautions to prevent loss. Continuing to erect spans after the concrete test results were known, if that is what happened, is a breach of the precautions condition and would be relevant to any later collapse at those locations.
Where else could the contractor look? First, the specialist sub-contractor whose load calculations were wrong: that is a design liability, recoverable under the sub-contractor's professional indemnity policy or directly in contract. Second, the concrete supplier, on a sale-of-goods quality warranty, for the under-strength mix. Third, its own liability to the authority under the construction contract, which is a contractual risk the CAR policy does not insure.
What the insurer should do now: appoint its own engineer to verify the collapse mechanism and the concrete test methodology, define in writing which quantities fall inside the carve-back, issue a reservation of rights letter on the P-12 and P-13 element, and quantify the girder as an excluded item. It should also preserve subrogation rights against the design sub-contractor for whatever it pays on the collapsed span.
3. How should the ₹4 crore claim for the dead worker be handled?
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The first question is status, not quantum. If the deceased was the contractor's own employee, or the employee of a sub-contractor treated as such, the CAR third-party section will not respond: third-party sections exclude liability to the insured's employees and to employees of sub-contractors, because that exposure belongs under the workmen's compensation section, the employer's liability section or a standalone Employee's Compensation policy. If he was, unusually, a visitor with no employment relationship, the third-party section is engaged, subject to its limit and excess.
The second question is the applicable measure. The contractor's legal liability to the dependants is either the statutory compensation under the Employee's Compensation Act 1923, computed on the relevant factor for the worker's age and wages, or a common-law claim in negligence. The insurer indemnifies the legal liability actually established, within the policy limit, not the figure the contractor chooses to put in the claim. A ₹4 crore demand is not a measure of liability, and if the common-law claim is pursued, the insurer is entitled to conduct the defence.
The third question is the interaction with the collapse. If the death was caused by the same girder failure and the collapse itself is an admitted event, the insurer must not let the employee-status exclusion be used to deny a claim that is properly one of employer's liability. The clean approach is to allocate: the works damage goes to the material-damage section, the death to the employer's liability or Employee's Compensation section, and the third-party section is left for any claim by the authority or by members of the public.
Finally, check whether a separate Employee's Compensation policy was in force. If it was, this claim goes there and the CAR policy should be relieved entirely.