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Engineering insurance policies – Types, Cover, and Cost

What is Engineering insurances?

Insurance policies that are more related to installation and operation engines and also rated to jobs of engineers are called “Engineering insurance policies”.

Common examples of engineering insurances are:

  1. Contractors’ All Risks Insurance
  2. Erection All Risks Insurance
  3. Machinery Breakdown Insurance
  4. Deterioration of Stocks Insurance
  1. Boilers and Pressure Plant Insurance
  2. Electronic Equipment Insurance (EEI)
  3. Work Plant (WP)
  4. Oil & Gas Well Drilling Equipment Package (OGD)
  5. Contractors Plant & Machinery (CPM)


Contractors’ all risks insurances:

CAR Insurance

The idea of CAR insurance is to give comprehensive cover against loss or damage in respect of the contract works,  construction plant and equipment and/or construction machinery, as well as for third-party claims in respect of property damage or bodily injury arising in connection with the execution of a building project.

—CAR Insurance -Concept

CAR offers efficient final protection for all parties concerned. Therefore, there is an increasing tendency on the part of the principals, consulting engineers, architects and financiers to make the conclusion of a CAR policy; a condition for the award of a tender. For quite sometimes, this has also been a condition stipulated in many contracts involving government projects.

—CAR Insurance – Subject matter

—Residential buildings, office buildings, hospitals, schools, colleges, Theaters etc.

—Factories, power plants

—Road, railway facilities, airports etc.

—Bridges, dams, tunnels, harbors etc.


—CAR Insurance –The Insured

—CAR Insurance is for- The Principal

—The Contractors engaged in the project including all sub-contractors.

—CAR Insurance -Cover

—Contract works:-The term implies all the operations to be carried out by a contractor and/or his subcontractors, in compliance with the building contract, including preparatory work on the site, such as excavation grading and leveling work, the execution of temporary structure like diversion cuts and protective dams as well as the use of all the materials store on the site which are to be incorporated in the structure.

—Construction Plant and Equipment: – The term implies workers’ accommodation, storage-sheds preparation and mixing plants, scaffolding, utilities (electricity, water supply) etc..

—CAR Insurance -Cover

—Costs of clearance of Debris:- This term implies the expenses incurred for the removal of debris from the site in the event of a loss indemnifiable under the CAR insurance.

—Third Party Liability:-This term implies legal liability arising out of property damage or death or bodily injury suffered by third parties and occurring in connection with the contract works.

—CAR Insurance -Perils

—Fire, lightning, explosion, crashing, extinguishing water or other fire fighting measures, aircraft.

—Flood, inundation, rain, snow, avalanche, tsunami. Wind storm of any kind.

—Earthquake, subsidence, landslide, rockslide

—Theft, burglary.

—Bad workmanship, lack of skill, negligence,   malicious acts  of human error.


—CAR Insurance -Exclusions

—War, warlike operations, military power, strike, riot, civil commotions, cessation of work, requisition by order of any public authority

—Willful act or willful negligence of the insured or his representatives. Nuclear fissions/ reactions etc.

—Deficiencies in the contract works or other financial losses, claims from penalties.

—Machinery  Breakdown  and Electrical  Breakdown,  that  loss or damage  not caused by exterior  influence  (whereas  any physical  loss or damage  to the building  project resulting there from  is covered)

—Faulty design and cost of rectification of any deficiencies in the contract works.


—CAR Insurance -Period

The cover attaches as from the commencement of work and terminates when the completed structure is taken over or put in service. But, it is possible to extend the period of cover to include a maintenance period.


—CAR Insurance – Sum insured

—The amount stated in the building contract.

—Plus the value of construction materials supplied.

—Plus any addition work performed by the principal.

Usually, separate sums insured are fixed for: –

Construction machinery  and construction plants and equipments. 

Clearance   of debris.


—CAR Insurance – Premium

—Atmospheric/Geographic     conditions e.g. the probability of flood, earthquake  etc. Design   feature and building   materials.

—Construction techniques.

—Safety factors construction time schedule.

—Measures provided to ensure safe execution of the project.



Erection all risks (EAR) Insurance

The basic  concept of  EAR  insurance is  to  offer  comprehensive and  appropriate protection against all site risks involved in the erection of machinery and plant as well as steel structures and industrial facilities.

—EAR Insurance – The insured

—The manufacturers or suppliers of machinery or plant if they carry out the erection work or are responsible for it.

—The firms commissioned with erection work.

—The purchaser  of machinery or plant to be erected.

—EAR Insurance – Subject

—Individual machines, apparatus and assemblies such as: turbines, generators, steam boilers, compressor, internal combustion engines, electric motors transformers, switchgears etc.

—Machine tools, pumps , elevators, cranes, conveyor belts, cableways.

—Printing machinery, paper and textile machinery overhead transmission lines, pipelines, tanks, containers, steel bridges.

—450 MW Meghnaghat Power Plant

—EAR Insurance – Subject

—Industrial plants, power stations, chemical plants, plants producing any other consumer goods etc.

—Civil Engineering work necessary for the project to be erected may be included in the cover, provided the nature of the project is predominantly that of erection work, that is to say,    the value of the facilities to be erected must exceed that of civil engineering work.

—EAR Insurance – Ext.

—EAR insurance also extended to SPTPL coverage- like CAR insurance.

—Scope of Coverage:-  It covers all the perils of CAR and also:-

—Faults of erection

—Short-circuiting, arcing, excess voltage

—Tearing, excess pressure


—Exclusions:-All like CAR exclusions.

—EAR Insurance – Period

—The insurance commences directly after the unloading of the items to  be insured at  the  site and  continues until the  erection work  and testing operations have been completed.

—In addition, it is possible to extend the period of cover to include maintenance period.


—EAR Insurance – Sum Insured

—The sum insured is the value of the machinery  or plant to be erected  in accordance    with    the    contract     including    freight,     customs    duties,   labor    costs transportation     and erection   costs.

—EAR Insurance – Premium

—The considerations  and basis are like as CAR insurance.

—EAR Insurance – Indemnification

—In the event  of loss or damage the  insurers    will indemnify   the insured for the expenses     necessary  to restore the damaged  machinery   or plants   to its condition immediately before  the  occurrence   of  the  damage.   This   expenditure    also   includes disassembly,    freight and reassembly costs   including   expenses   for the employment   of specialists   (if necessary).


Machinery breakdown insurance

MBD Insurance

Machinery Breakdown Insurance (or Machinery Insurance Policy) should be an interest to everyone who operates machinery-not only to the big industrial enterprises using large units or sophisticated production plants, but also to medium-sized and small undertakings where a machinery failure may have serious financial and economic consequences.


—MBD Insurance- Items covered

  1. a) Boiler with auxiliaries such as stokers, oil firing equipment, fans and blowers, and feed pumps.
  2. b) Electrical equipment including alternators and generators, motors, rectifiers, switchgears and transformers.
  3. c) Mechanical plant including engines, turbines (steam, water, gas), boilers, compressors, pumps, machine tools and presses. Process machinery in such industries as cold stores, engineering and metal industries, paper pulp making printing, rubber-plastics and textiles, etc.

d)Lifting equipment including cranes of all kinds’ conveyors and lifts.

—MBD Insurance- Scope

  1. a) Faulty material, design, construction or erection;
  2. b) Vibration, maladjustment, misalignments;
  3. c) Defective lubrication, loosening of parts, abnormal stress, molecular fatigue, self heating, centrifugal force, explosion due to internal pressure, explosion due to external pressure or internal vacuum;

—MBD Insurance- Scope

  1. d) Excessive electrical pressure whether  due  to  atmospheric electricity  or otherwise, failure of insulation, short circuits, open circuits or arcing including damage by internal fire so set up;
  2. e) Failure of connected machinery or protective devices;
  3. f) Lack of skill, carelessness or malice of persons whether in the insured’s employ or not;
  4. g) Falling, impact, collision   and the like;
  5. h) Obstruction or the entry of foreign

—MBD Insurance- exceptions

—Fire   and   Special Perils:    The policy   does not cover damage due to fire, lighting,    explosion (other   than disruption   turbines,    compressors,   etc.  or other  items  subject  to  centrifugal force or internal  pressure),theft,    collapse of buildings,   subsidence,   landslide,   water which escapes from water containing  apparatus,   flood,  inundation,   storm,  tempest,  earthquake, volcano     or  other  acts  of  God  and  impact  with  vehicles  or  aircraft   damage  including articles  dropped  from aircrafts  or  other  aerial devices.


—MBD Insurance- exceptions

—Damage to machinery caused by fire is specially   excluded.  However,   the  intention  (with  regard to  electrical   plant)  of the Machinery  Insurance  Policy is to cover self heating   or internal  fire due to electrical    faults but exclude  damage  caused  by external  fire or direct  lightning   which   are covered  by the Fire   Policy.   Damage to a machine by fire spreading from an adjacent machine   is also excluded.


—MBD Insurance- exceptions

—Damage occasioned by war and civil war (uninsurable) or riot, strike and kindred risks (matter for the fire policy) or nuclear risks (uninsurable).

—Damage resulting from experiments or overload or similar tests.

—Wastage of material of the like or wearing  away or wearing out of any part of the

—machine caused by or naturally resulting  from ordinary usage or working, or other

—gradual deterioration.

—Loss or damage caused by the willful act or gross negligence on the part of the insured or his responsible representatives.

—MBD Insurance- exceptions

—Loss of use or any other kind of consequential loss.

—Faults or defects which  were in  existence when the insurance was arranged and

— known to the insured.

—Damage due to faults   or  defects for which  the manufacturer or the Supplier is responsible  either by law or under contract.

—Exchangeable parts and tools such as belts,  ropes,  chains, dies,  moulds, blades,

—cutters,  knives, engraved cylinders,  engraved rolls and similar other parts including

—all objects not made of metal (except insulation of electrical conductors).


—MBD Insurance- Sum insured

—Sums insured  of each individual  item  must represent  its current  new replacement  value including  transportation    cost  to  site,    customs   duties  and  all  installation   costs.  Under insurance should   be avoided,    otherwise   claims   for repairs or replacements are paid only in the proportion   which   the sum insured bears to the current new replacements value.  In other words,   the claim    settlement becomes subject to the condition of average.


—MBD Insurance- Indemnification

  1. a) In cases where  the  damage  can  be repaired,  the  basis  of indemnification   is the costs of restoration  of working  other  based on the customary  daily  rates of wages together  with  normal  freight  and  erection  costs  and     Customs duties and dues, if any to the extent such expenses have been included in the sum insured.  In such cases of repairable   damage,   no deduction   is made for wear   and tear, depreciation etc.

—MBD Insurance- Indemnification

  1. b) Where the insured items is totally destroyed or is a constructive total loss, the basis of indemnification is the market value of the item immediately before the accident plus the cost of removing the damaged machinery less the value of the salvage. c) Any extra charges incurred towards repairs, such as Express Delivery, Overtime etc.

—MBD Insurance- Indemnification

—And holiday rates and wages are payable only if special provision for these items have been made in the policy in consideration of which an additional premium is charged. All costs of alterations, additions, improvements and overhauls carried out on the occasion of a repair are to be borne by the insured.


Deterioration of stock Insurance

The policy, known as Deterioration of Stock Insurance or Stock spoilage insurance is a form of consequential loss cover granted in the Engineering Department for stocks contained in large cold stores. The cover is against the risk of deterioration/putrefaction and contamination following breakdown of the refrigeration plant and machinery, a claim for which is admissible in terms of the concurrent Machinery Breakdown Policy.


—DOS Insurance-cover

Loss or damage by deterioration or putrefaction of the contents of the Cold Store caused by:

  1. a) a rise or fall in temperature resulting from

—i)  Breakdown of refrigeration plant and equipment at the premises.

—ii)  Damage to the said plant and equipment by an incidental extraneous cause subject to certain excluded perils mentioned later.


—DOS Insurance-cover

—b)  Action of refrigerant fumes escaping from the aforementioned plant and equipment.

—i)  Reasonable expenses incurred to avoid or diminish such loss or damage by deterioration or putrefaction, for example, by transferring threatened goods from one cold store to another.

—ii)  The policy can also be extended on payment of additional premium to cover damage to stocks resulting from accidental failure of electricity supply at the terminal ends of the supply authority’s service feeder at the insured’s  premises due to  an accident by a  perils insured under the material damage i.e. Machinery Breakdown Policy.

—DOS Insurance-exclusions

  1. a) Fire, Lightning,  Extinguishing  of  Fire  or  subsequent  dismantling,  chemical explosion, theft, collapse or building, subsidence, landslide, water which escapes from water containing apparatus, flood, inundation, storm, tempest, earthquake, and other Acts of God perils. Cover for these perils may by obtain in the fire or Miscellaneous (Accident) Department.
  2. b) War, Civil War, Riot, Strike and Nuclear Risks.
  3. c) Consequential loss, damage or liability due to or arising from the deterioration, putrefaction or contamination of the goods (for example, claim for “Loss of Market” etc.) or third party claims for poisoning as a result of eating contaminated

—DOS Insurance- Sum insured

—The sum insured should represent the maximum capacity value of stocks of the Cold Store at any one time during the currency of the policy.

—This is very necessary as these policies are subject to the condition of Average.

—DOS Insurance- Indemnification

—The liability of the Insurer is normally limited to the market value of the commodities immediately before the accident. In one event the total liability of the company will not exceed the sum insured under the policy.

—Since claims under the Deterioration of Stock policy follow a breakdown covered under the standard Machinery Breakdown Insurance Policy, as  soon  as  indication of  a breakdown in a Cold Store is received it is necessary to check the conditions of the stocks also simultaneously. This will enable the assessor to determine whether the loss under the Deterioration Policy has in fact occurred as a result of the breakdown or due to some other extraneous cause.

—Normally claims under this policy particularly covering fish meat Cold Stores should be supported by Certificates issued by the Government Authorities confirming that the stocks are unfit for human consumption.


—5. BPV Insurance -terminology

—”Boiler” shall mean any fired closed vessel or a combined container piping system in which steam is generated under pressure.

—”Pressure vessel” shall mean a container designed to hold material at high pressures; any unfired closed container under steam gas, or fluid pressure.

—”Explosion” shall mean the sudden and violent rendering or tearing apart of the permanent structure of a boiler or pressure plant or any part or parts thereof by force of internal steam,  gas or fluid pressure causing bodily displacement of the said structure and accompanied by the forcible ejectment of its contents.



Pressure vessel insurance

BPV Insurance -terminology

—”Collapse” shall mean the sudden and dangerous distortion of any part of a boiler or pressure plant by bending or crusting caused by steam, gas or fluid pressure whether attended by rupture or not, it shall not mean any slowly developing deformation due to any cause.

—”Flue Gas Explosion” shall mean an explosion of ignited gases in the furnaces or flues of the boilers economizers and super heaters.

—”Chemical Explosion” shall mean an explosion arising out of chemical reaction in any plant.

—BPV Insurance- cover

The policy covers Explosion or Collapse of the insured Boilers or other pressure vessels resulting in:

—a)     Damage to insured item itself.

—b)     Damage to other surroundings property of the insured.

—c)  Liability for Third Party Property Damage and /or human life fatal or non fatal personal injuries.

—BPV Insurance- cover

—It should be noted that Explosion or Collapse arising in the course of ordinary working only is covered in terms of the Boiler and Pressure Plant Insurance Policy.

—The Policy also automatically covers Explosion caused by ignition of flue gases.


—BPV Insurance- exceptions

—Fire and Special Perils: The Policy does not cover loss or damage caused by fire (arising from whatever cause), theft,  collapse of  buildings, subsidence, landslide, rockslide, water escaping from water containing apparatus, inundation, earthquake, storm, tempest or other Acts of God,  impact with vehicles of any kind, air-craft and/or aerial devices including articles dropped there from.

—BPV Insurance- exceptions

—Damage caused by War and Civil War, nuclear reaction (uninsurable) or Riot and

Strike, Lockout Malicious Damage (to be insured under the Fire Policy).

—Accidents   resulting   form overload   experiments   or tests   requiring   imposition   of abnormal conditions.

—Gradually   developing   flaws,  defect  or  depreciation   not  necessitating   immediate stoppage  or defects  wearing  away  or wasting  of  material  for  any  reason  unless such defects result in explosion or collapse.

—Loss or damage occasioned  by the application  of steam,  hydraulic  or any other test of the plant as specified  by the Inspecting   Authority  or otherwise

—BPV Insurance- exceptions

—Failure of individual tubes unless resulting in explosion or collapse.

—Loss or damage due to willful negligence or the willful act on the part of the insured or his authorized representatives.

—Loss or damage due to faults or defects which existed at the commencement of to insurance and known to the insured but not disclosed to insurers.

—Loss of use or any other consequential loss.

—Loss or damage for which manufacturers or suppliers or repairers are responsible either by law or under contract.

—Loss or damage due to Chemical Explosion other than flue gas Explosion.

—BPV Insurance- sum insured

—It will be seen from the schedule  of the Boiler and Pressure  Plant Insurance  Policy that the  Insured  is  expected  to  nominate  three  separate  sums  insured  in  respect  of  the following  item:

—a)      The Boiler and Pressure Plant insured.

—b)      Damage to surrounding Property of the insured or hold in trust or commission.

—c)      Legal Liabilities to third Parties (Personal injury and property damage).

—BPV Insurance- sum insured

—It must be borne in mind that the sum insured representing  the value of the insured plant should  represent  the  current  new  replacement  value  of the  Boiler  and  Pressure  Plant Insurance  Policy contains the Condition of Average  in respect of Item –  1   i.e. the insured Plant and Machinery.


Abdul Kadir ACII
Abdul Kadir ACII

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