Contractor's All Risk Insurance on a Fit-Out: Who Insures What

The question is not "are we insured" but "who insures what"

On most fit-outs, insurance is handled as paperwork. The contractor sends a policy schedule, someone files it, and the landlord asks for a certificate before issuing site passes. The question everyone has answered is whether there is a policy. The question that matters, and is rarely asked, is which risks are covered, by whose policy, and where the gaps are.

The common misconception sits in the name. "All Risk" sounds as if it covers everything that could go wrong on site. It does not. A Contractor's All Risk (CAR) policy is mainly about the contract works themselves: the partitions, ceilings, services and finishes being built, and the materials brought in for them. Injury to the contractor's workers, damage to the landlord's building or a neighbouring tenant's office, the client's own furniture and IT, and the cost of fixing poor workmanship are different risks, often covered by different policies, sometimes by none.

For a CEO or CFO the cost of a gap is not the premium saved. It is a water leak from a new pantry that damages the floor below, a fire during hot works, or a serious injury on site, followed by the discovery that each party assumed the other was covering it.

The covers on a typical fit-out

Every row depends on the policy wording and the contract. The table shows what to ask about, not what any particular policy provides.

What CAR insurance typically covers, and what it does not

CAR policies generally respond to accidental physical loss or damage to the works during the construction period: fire, flood and water damage, theft of materials, accidental impact, and similar events, subject to the wording. Many include a third-party liability section for injury to people and damage to property that are not part of the works.

Typical exclusions include the cost of rectifying defective design, materials or workmanship, wear and gradual deterioration, loss of use and other consequential losses, contractual penalties, and the contractor's own tools and equipment unless added. Large deductibles can also leave a meaningful part of any loss with the insured parties. None of this makes CAR less useful; it means the policy needs to be read, not filed.

Two figures in the schedule deserve particular attention. The sum insured should reflect the full value of the works being built, including variations added during the project and any items the client buys and hands to the contractor to install; if it falls short, a claim may be reduced in proportion. The deductible is the part of each claim the insured parties bear themselves, and the contract should say whether that is the contractor or the client. Both are commercial choices with consequences, so they belong in the tender pack rather than being left to whoever buys the policy. How a tender should state these requirements so every bidder prices them equally is covered in running a fair fit-out tender.

Defects are usually handled under the contract rather than through insurance, through the defects liability period and retention, which is covered in retention money and bank guarantees in fit-out contracts.

Who insures what: set it in the contract, then in the policies

The contract should allocate insurance before the policies are bought. For each risk it should say who takes out the cover, in whose names, to what amount or limit, for what period, and who bears the deductible.

Joint names. Where the contractor arranges CAR, putting it in the joint names of the contractor and client, or at least noting the client's interest, means both can claim for damage to the works. Ask whether subcontractors are covered under the same policy.

The landlord's requirements. Most buildings set insurance conditions for tenant works in their fit-out guidelines: types of cover, sometimes minimum limits, the landlord named or noted, and certificates before work starts. Those conditions should be in the tender pack so they are priced, as described in reading the landlord's fit-out guidelines before design.

Occupied buildings. Where the fit-out runs beside working areas, the exposure to third parties and to the client's own operations rises, which is one reason phasing, protection and isolation of the working areas matter as much as the policy limits.

The end of cover. CAR usually ends at completion, handover or when the works are taken into use. A phased handover, early occupation of part of a floor, or a move-in before practical completion can change when cover stops and the client's own policy has to take over. Agree the dates with both insurers.

Insurance is the last line of risk control, not the first

Insurers and landlords alike look first at how the site is run. NBC 2016, Part 7 covers construction management, practices and safety, and IS 15883 (Part 5) gives guidance on health and safety management for construction projects. Hot works permits, fire watch, storage of flammable materials, protection of existing services and water isolation procedures reduce both the chance of a claim and the disruption one causes. IS 15883 (Part 8) and ISO 31000 describe risk management as identifying, assessing and treating risks; insurance is one way of treating some of them, after avoidance and control.

Common mistakes

• Reading "All Risk" literally. The policy covers the works, within its wording, not every loss on site.
• Filing the certificate without the wording. Exclusions and deductibles are in the policy, not the certificate.
• Leaving the client out of the policy. Damage to the works then depends on the contractor's willingness to claim.
• Forgetting client-supplied items. Furniture or equipment bought by the client and installed by the contractor is left outside the sum insured.
• Ignoring subcontractors' workers. Workmen's compensation held by the main contractor does not automatically cover them.
• Occupying early without telling the insurers. Cover for the works may end when the space is taken into use.
• Not mapping the landlord's building. Damage to base-building services falls between the contractor's, landlord's and client's policies.

What to ask before work starts

• Who arranges CAR insurance, in whose names, for what sum and period?
• Does the sum insured include client-supplied items and all subcontract work?
• What is the third-party liability limit, and does it meet the landlord's requirement?
• Do the contractor and every subcontractor hold workmen's compensation cover for their workers on this site?
• How is damage to the landlord's building and services covered, and who pays the deductible?
• When does each cover end, and how does a phased handover affect it?
• Has our own insurer been told about the works and the planned occupation date?

Standards referenced

Construction management, practices and safety in NBC 2016, Part 7; guidance on health and safety management and on risk management for construction projects in IS 15883 (Part 5) and IS 15883 (Part 8); risk management principles in ISO 31000. The scope, exclusions, limits and period of any policy are set by its wording and must be confirmed by the insurer or broker; the allocation of insurance in a contract, and any statutory insurance obligation, by the parties' lawyers.