Contractors’ all risk insurance, also referred to as Contract Works Insurance or Construction Insurance, is a non-standard insurance policy that provides coverage for accidental physical loss or damage that occurs to a property insured during the construction period. It covers the contract works undertaken by the contractor and sub contractors.
There are many risks associated with a construction project, which could result in crippling costs and even possible injury. As a contractor, it is essential that you are adequately covered with the right insurance to protect you against this risk – and give you peace of mind. If the worst were to happen, all risk insurance could be the lifeline that will help your business survive.
What Does Contractors All Risk Insurance Cover?
Contractors All Risk Insurance (CAR), sometimes referred to as contract works insurance, is designed to protect construction projects from unexpected setbacks. It brings together a wide range of cover under a single policy, giving contractors, developers, and property owners reassurance that they will not be left financially exposed if something goes wrong on site.
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Damage to the Works
This is the core element of CAR insurance. If building works are damaged by fire, flood, storm, theft, or accidental events, the policy pays to repair or replace them. Whether it is a new build, refurbishment, or extension, the works in progress are protected until completion.
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Tools, Equipment and Materials
Construction often involves expensive tools and specialist equipment. CAR insurance can cover loss or damage to machinery, scaffolding, and materials stored on site. Without this protection, replacing stolen or damaged equipment could cause serious delays and additional costs.
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Third-Party Property Damage
- Building sites are busy places and accidents can happen. If neighbouring property is damaged during construction — for example, if scaffolding collapses onto a nearby car or wall — Contractors All Risk Insurance can cover the repair costs. This avoids disputes and large out-of-pocket expenses.
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Injury to Third Parties
If a member of the public, a visitor, or another third party is injured as a result of site activities, CAR insurance can cover compensation claims and legal fees. This ensures that both financial and reputational risks are managed effectively.
Is Contractors All Risk Insurance a Legal Requirement?
Contractors All Risk Insurance is not a legal requirement in the UK, unlike Employers’ Liability Insurance, which is compulsory if you hire staff. However, CAR insurance is often considered an industry standard because of the financial risks involved in construction. Without it, contractors and property owners could face huge costs if something goes wrong on site.
UK Law and Industry Standards
UK legislation does not make CAR insurance mandatory, but many industry frameworks and contract agreements expect it to be in place. Major construction contracts, including those based on JCT (Joint Contracts Tribunal) or NEC (New Engineering Contract) forms, frequently specify that either the contractor or the employer must arrange this cover. Having CAR insurance is also seen as a sign of professionalism and reliability when tendering for projects.
When Contractors All Risk Insurance is Strongly Recommended
Even when it is not legally required, CAR insurance is highly advisable in situations such as:
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Large or complex projects where potential damage costs could be very high
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Self-build or development projects where the owner bears the financial risk
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Joint ventures involving multiple contractors and subcontractors
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Projects where lenders, investors, or housing associations insist on insurance as a condition of funding
In practice, many contractors treat CAR insurance as essential, because without it a single incident — such as a fire, theft of materials, or damage caused by severe weather — could wipe out profits or even threaten the survival of the business.
Is contractors all risk insurance the same as public liability?
No, contractors all risk insurance is different to public liability insurance. The main purpose of public liability insurance is to protect you from legal liability for injuries inflicted on third parties, such as customers and members of the public.
Public liability insurance also covers property damage that may result from your business activities.
As an example, if your employees were to scratch a client’s walls when moving items, this damage would be covered by public liability insurance. A customer may also slip when walking through your store or office, and this may result in physical injuries. Such incidents are also covered by public liability insurance.
The insurance company will pay the legal expenses related to the damage, and this includes any legal fees. Also, it will cover the compensation for the damage.
Here are some areas which are not covered by public liability insurance, but they are covered under contractors all risk insurance:
- Damage to contract works that result from unexpected issues like floods, fires, and explosions
- Damage to contractors’ machinery or equipment at the worksite
- May not cover hot works and welding
- Issues with the piling, demolition, and excavation works
- Issues with marine cargo and inland transit when shipping goods
Is contractors all risks the same as professional indemnity?
Contractors all risk insurance is different to professional indemnity. The latter is designed to protect you and your construction business from claims made by clients and third parties that may result from negligence, omission, or errors. Professional indemnity insurance also covers intellectual property infringement and defamation cases. It will cover the legal costs and the compensation for the damage.
Here are some areas that are covered under contractors all risk insurance, but are not included in professional indemnity insurance:
- Damage to clients’ property
- Damage to third party property
- Injuries to third parties like passers-by
- Injuries to your employees
Who takes out contractors all risk insurance?
Usually, the contractor and employer will jointly take out contractors all risk insurance policies. Other parties may also be named in the policy, including the financing company. Each party included in the policy will retain the right to file a claim against the insurer. With these policies, all parties are covered without any consideration for the type of damage or the individual who caused the damage.
It is worth noting that the insurer does not have the right to recover funds from another party in the contract and will simply be required to pay out funds to the relevant parties in the contract.
As an example, if the contractor causes damage to a building, the employer can recover the funds from the insurer. In such cases, the insurer will not be able to recover any money from the contractor.
Contractors all risk insurance can be extended to cover the interest of subcontractors, contractors, manufacturers, and even suppliers.
Is contractors all risk the same as contract works insurance?
Many people confuse these two forms of insurance, but they are quite different.
| Aspect | Contractors All Risk Insurance | Contract Works Insurance |
|---|---|---|
| Scope | Broad policy that can combine cover for works in progress, plant and equipment, third party property and injury to third parties | Focused on protecting the building works in progress |
| Main purpose | Comprehensive protection for contractors, developers and property owners across common construction risks | Covers the cost of repairing or redoing a project after events such as fire, flood, vandalism or theft |
| Who uses it | Contractors, subcontractors, developers and property owners seeking wide project cover | Builders, contractors and developers working on a specific project |
| Typical cover | Damage to the works, tools, materials, hired in plant, third party property and injury to third parties | Labour, materials and tools needed to bring the project back to the stage it was before damage occurred |
| Exclusions | Varies by policy, often excludes wear and tear, poor workmanship or deliberate damage | Does not cover existing buildings on site and often excludes terrorism |
| Overlap | Contract works cover is usually included as a key component of a Contractors All Risk policy | Can be purchased on its own or as part of a wider Contractors All Risk policy |
You should go through the terms of the insurance policy to determine what else is excluded. For example, in many cases, contracts works insurance will not cover damage caused by terrorism.
Is all risk insurance the same as property insurance?
Property insurance is also quite different to all risk insurance. It is meant to cover property owners and renters, and it provides coverage for damage resulting from fires, weather, theft, and other risks. Here are some of the common forms of property insurance:
- Homeowners insurance
- Renters insurance or tenants content insurance
- Mobile home insurance
- Landlord insurance
- Flood insurance
- Earthquake insurance
You can read through the terms of the policy or contact us to find out what is covered and what is excluded. In many cases, insurers will not cover items that are very high in value. Such items will be covered by an additional insurance policy.
Does contractors all risk insurance cover hired-in plant?
Contractors all risk insurance is essential to all contractors and employers and it can include cover for own plant, hired-in plant and employees’ tools.
Hired-in plant includes tools, heavy machinery and large equipment which is rented from a supplier. And hired-in plant insurance provides protection against the risk of that plant being damaged, stolen or becoming unusable.
Where all risk insurance cover includes hired-in plant insurance, the insurer will pay out in the case of damage or theft, and this can prove valuable to you and your business, not only covering you for often expensive losses, but also saving you time to keep your current and future construction projects moving forward.
