ENGINEERING INSURANCE

ENGINEERING INSURANCE BY R.R.JOSHI

BACKGROUND • ENGINEERING INSURANCE ORIGINATED IN U.K.IN THE MIDDLE OF THE 19th CENTURY WITH INSURANCE AGAINST BOILER EXPLOSION RISKS • OTHER INSURANCES LIKE MACHINERY BREAKDOWN /DOS/ PROJECT INSURANCES BECAME POPULAR WITH THE GROWTH OF INDUSTRIALISATION • TWO BROAD GROUPS- • CONSTRUCTION PHASE COVERS • OPERATIONAL PHASE COVERS

CONSTRUCTION PHASE PROJECT COVERS I. MATERIAL DAMAGE (MD) A) CONTRACTORS ALL RISK (CAR) B)ERECTION ALL RISKS (EAR) STORAGE CUM ERECTION (SCE) C)MARINE CUM ERECTION (MCE) II. BUSINESS INTERRUPTION A) ADVANCE LOSS OF PROFIT(ALOP) FOLLOWING LOSS OR DAMAGE PROPERTY UNDER EAR/CAR

OPERATIONAL PHASE • OPERATIONAL PHASE-OPERATIONAL COVERS • I. MATERIAL DAMAGER(M.D.) • A. I) MACHINERY INSURANCE • II) BOILER AND PRESSURE PLANT (BPP) • III) ELECTRONIC EQUIPMENT INSURANCE (EEI) • CONTRACTOR’S PLANT MACHIENRY (CPM) • CIVIL ENGINEERING COMPLETED RISKS(CECR)INSURANCE

OPERATIONAL PHASE COVERS…contd • D. DETERIORATION OF STOCK (DOS) • II. BUSINES INTERRUPTION=LOP • MACHINERY LOSS OF PROFIT (MLOP) • FOLLOWING MATERIAL DAMAGE UNDER M.B.POLICY • BPPLOP FOLLOWING EXPLOSION/IMPLOSION DAMAGE TO BOILER/PRESSURE VESSEL

CONTRACTOR’S ALL RISK POLICY (CAR) • PURPOSE • TO PROTECT THE INTEREST OF • CONTRACTORS • PRINCIPALS • FINANCIERS • 2. POLICY IDEALLY SUITED FOR CIVIL ENGINEERINGPROJECTS LIKE MULTISTORIED BUILDINGS/ BRIDGES /FLYOVERS /DAMS/ ROADS/ CANALS/ SILOS/TUNNELS etc.—VALUE OF CIVIL WORKS SHOULD BE MORE THAN 50%

CAR POLICY- PERILS COVERED • SECTION –I (MATERIAL DAMAGE) ALL RISK COVER (ALL RISKS OTHER THAN EXCLUSIONS) THIS MEANS THAT ALMOST ANY SUDDEN AND UNFORESEEN LOSS OR DAMAGE WILL BE COVERED INCLUDING- • ACCIDENTAL LOSSES LIKE COLLAPSE, IMPACT FIRE ,LIGHTNING, EXPLOSION • AOG PERILS LIKE STFI GROUP, EARTHQUAKE, LANDSLIDE/ROCKSLIDE • HUMAN PERILS LIKE THEFT / BURGLARY, BAD WORKMANSHIP,LACK OF SKILL, NEGLIGENCE, MALICIOUS ACTS , HUMAN ERROR,TERRORISM ETC

CAR POLICY- PERILS COVERED ..contd • EXCLUSIONS UNDER SECTION I • EXCESS • NORMAL WEAR AND TEAR,RUSTING • CORRECTION OF ANY ERROR UNLESS RESULTING IN PHYSICAL DAMAGE/LOSS • FILES/DRAWINGS/CURRENCY,CHEQUES • PACKING MATERIAL • PENALTIES UNDER CONTRACT CONDITIONS • VEHICLES LICENSED FOR ROAD USE • LOSS/DAMAGE DUE TO FAULTY DESIGN • SECTION-II (THIRD PARTY LIABILITY)

CAR POLICY -SUM INSURED • SUM INSURED • ESTIMATED COMPLETELY ERECTED VALUE OF THE CONTRACT WORKS INCLUSIVE OF • WAGES • MATERIALS • COST OF CONSTRUCTION • FREIGHT • CUSTOM DUTY • TAXES • ITEMS SUPPLIED BY PRINCIPAL • SUM INSURED IS ADJUSTABLE ON COMPLETION OF CONSTRUCTION ON THE BASIS OF ACTUAL VALUES IN RESPECT OF CONSTRUCTION COST,FREIGHT CUSTOM DUTIES (INCREASE/DECREASE IN PRIME COST OF MATERIAL NOT TO BE TAKEN INTO ACCOUNT)

CAR POLICY-OTHER IMPORTANT PROVISIONS • POLICY PERIOD -COMMENCEMENT OF WORK OR AFTER THE UNLOADING OF THE FIRST CONSIGNMENT AT THE SITE--WHICHEVER IS EARLIER. THE COVER EXPIRES ON COMPLETION OF THE PROJECT/COMPLETED PART BEING TAKEN OVER OR PUT INTO OPERATION BY PRINCIPAL/THE DATE SPECIFIED IN THE POLICY --- WHICHEVER IS EARLIER. • COVER FOR CONSTRUCTION PLANT MACHINERY- CONSTRUCTION PLANT& MACHINERYCAN BECOVERED WHERE S/I FOR CPM DOES NOT EXCEED 5% OF CAR S/I • SURROUNDING PROPERTY-SEPARATE S/I TO BE SPECIFIED

CAR POLICY-OTHER IMPORTANT PROVISIONS..…contd • REMOVAL OF DEBRIS • MAINTENANCE COVER-TWO TYPES • LIMITED MAINTENANCE-LOSS/DAMAGE TO COTRACT WORKS CAUSED BY CONTRACTOR DUE TO OPERATIONS CARRIED OUT FOR COMPLYING WITH MAINTENANCE PROVISIONS OF THE CONTRACT • EXTENDED MAINTENANCE-AS ABOVE PLUS LOSS/DAMAGE DURING MAINTENANCE PERIOD CAUSED BY FAULT/PERIL INSURED DURING THE CONSTRUCTION PERIOD • ADDITIONAL EXPENSES FOR OVERTIME/ EXPRESS FREIGHT/AIR FREIGHT • COVER FOR ADDITIONAL CUSTOMS DUTY AND INCREASED REPLACEMENT VALUE

ERECTION ALL RISK POLICY • WHEREAS CAR POLICY IS CONCERNED WITH CIVIL ENGINEERING WORKS,EAR OR SCE (STORAGE –CUM- ERECTION) IS CONCERNED WITH INDUSTRIES AND DEALS WITH ERECTION OF PLANT AND MACHINERY/ EQUIPMENT AND STRUCTURES WHERE THE COST OF CIVIL WORKS DOES NOT EXCEED 5%OF THE PROJECT COST. • POLICY MAY BE ISSUED IN THE JOINT NAMES OF PRINCIPALS/CONTRACTORS /FINANCIERS IN RESPECT OF THE ENTIRE PROJECT OR PART THEREOF AS PER CONTRACT SPECIFICATIONS. • COVERAGE—ALL RISK COVER ON THE LINES OF CAR POLICY

SCOPE OF EAR POLICY • SUM INSURED=COMPLETELY ERECTED VALUE OF PROJECT INCLUDING FREIGHT, COST OF ERECTION etc. • POLICY PROVIDES FOR- • PREMIUM ADJUSTMENT • CPM COVER • SURROUNDING PROPERTY • REMOVAL OF DEBRIS • THIRD PARTY LIABILITY • MAINTENANCE COVER • ……ON THE LINES OF CAR POLICY

SCOPE OF EAR POLICY…contd • POLICY PERIOD • POLICY WILL COMMENCE FROM THE TIME OF UNLOADING OF THE FIRST CONSIGNMENT AT THE SITE AND CONTINUES DURING THE STORAGE/ERECTION / TEST OPERATION OR TEST LOADING /TRIAL RUNNING etc. AND EXPIREAFTER COMPLETION OF THE PROJECT/HANDING OVER TO THE PRINCIPALS OR THE DATE SPECIFIED IN THE POLICY WHICHEVER IS EARLIER. ONE MONTH TESTING IS INBUILT UNDER THE POLICY • REFUND OF PREMIUM ALLOWED FOR EARLY COMPLETION SUBJECT TO TERMS/CONDITIONS

MARINE-CUM-ERECTION POLICY • MCE POLICY PROVIDES MARINE ALL RISK COVER IN CONJUNCTION WITH EAR POLICY • POLICY PERIOD-COMMENCES WITH THE DISPATCH OF THE FIRST CONSIGNMENT TO THE PROJECT SITE. A SEPARATE MARINE TRANSIT POLICY FOR IMPORTED AND INDIGENEOUS EQUIPMENTS /PROJECT MATERIAL ON ALL RISK PLUS WAR/SRCC TERMS IS ISSUED IN CONJUNCTION WITH THE EAR/SCE POLICY. • FABRICATOR’S WORKS EXTENTION-COVERS PROJECT MATERIAL AGAINST TO-AND –FRO TRANSIT RISKS AND STORAGE RISKS AT FABRICATOR’S PREMISES

MACHINERY INSURANCE POLICY • PROPERTY TO BE COVERED- • BOILERS/PRESSURE PLANTS WITH AUXILLARIES • ELECTRICAL EQIPMENTS LIKE ALTERNATORS/GENERATORS/MOTORS/ RECTIFIERS/SWITCHGEAR/TRANFORMERS • MECHANICAL PLANT/ MACHINERY INCLUDING ENGINES/ PUMPS/ PROCESS MACHINERY/BLOWERS/COMPRESSORS /REFRIGERATION PLANT/TURBINES /MACHINE TOOLS AND PRESSES • LIFTING EQUIPMENTS LIKE LIFTS , HOISTS, CRANES,CONVEYORS

MACHINERY INSURANCE POLICY • POLICY COVERAGE – • UNFORSEEN AND SUDDEN PHYSICAL LOSS OR DAMAGE BY ANY CAUSE (OTHER THAN EXCLUSIONS) TO THE INSURED PROPERTY- • WHILE IT IS AT WORK OR AT REST OR • WHILE BEING DISMANTLED FOR CLEANING OR OVERHAULING OR • DURING CLEANING OR OVERHAULING • DURING SUBSEQUENT ERECTION/ REASSEMBLY OR • 5. WHILE BEING SHIFTED WITHIN THE INSURED PREMISES

MACHINERY INSURANCE POLICY…contd • LOSS PRODUCING EVENTS COULD BE- • ELECTRICAL eg. Short circuit,arcing,failure of insulation, malfunctioning of control circuits etc. • MECHANICAL eg.faulty material/ casting, vibrations, maladjustments,loosening of parts, abnormal stress, centrfugal forces, defective lubrication, failure of protective devices etc. • EXTERNAL/ACCIDENTAL eg.entry of foreign body,impact,collision etc. • SUM INSURED=CURRENT NEW REPLACEMENT VALUE INCLUDING TRANSPORTATION TO SITE/DUTY/ERECTION OR INSTALLATION COST

MACHINERY INSURANCE POLICY…contd • IMPORTANT EXCLUSIONS- • FIRE AND SPECIAL PERILS • LOSS/DAMAGE DUO TO OVERLOAD TESTS OR EXPERIMENTS • WASTAGE OF MATERIAL /WEARING OUT OF ANY PART DUE TO GRADUAL DETERIORATION /USAGE OR WORKING • WAR AND WARLIKE PERILS/NUCLEAR PERILS/CONSEQUENTIAL LOSSES • MANUFACTURING DEFECTS • WILFUL ACT/GROSS NEGLIGENCE OF THE INSURED • DAMAGE TO EXCHANGEABLE PARTS TOOLS SUCH AS BLADES/CUTTERS /KNIVES etc. • POLICY EXCESS

CONTRACTORS PLANT & MACHINERY (CPM) POLICY • PROPERTY COVERED- CONTRACTORES PLANT AND MACHINERY LIKE PILE DRIVING EQUIPMENT, EXCAVATORS,COMPRESSORS,CRANES, MIXING PLANTS,STONE CRUSHERS, BULLDOZERS • CPM CAN BE INSURED UNDER CAR/EAR POLICY AS AN ADDITIONAL ITEM IF THE SUM INSURED OF CPM IS 5% OF TOTAL SUM INSURED OF CAR /EAR PROJECT SUBJECT TO MAXIMUM OF RS.25 LACS

CONTRACTORS PLANT & MACHINERY POLICY Contd.. PERILS COVERED UNFORSEEN AND SUDDEN PHYSICAL LOSS /DAMAGE FROM ANY CAUSE INCLUDING - a) BURGLARY ,THEFT,RIOT & STRIKE , MALICIOUS DAMAGE AND TERRORISM b) FIRE & LIGHTNING, EXTERNAL EXPLOSION, EARTHQUAKE, FLOOD, INUNDATION, SUBSIDENCE, LANDSLIDE AND ROCKSLIDE.

CONTRACTORS PLANT & MACHINERY (CPM) POLICY Contd.. PERILS COVERED…contd c) STORM,TEMPEST, HURRICANE, TYPHOON AND TORNADO d) ACCIDENTAL DAMAGE DUE TO MAN HANDLING, DROPPING OR FALLING, COLLAPSE , COLLISION AND IMPACT SUM INSURED=CURRENT NEW REPLACEMENT VALUE INCLUDING TRANSPORTATION COSTS/CUSTOM DUTY/ERECTION OR INSTALLATION COSTS

CONTRACTORS PLANT & MACHINERY (CPM) POLICY Contd.. • SCOPE OF COVER: THE CPM IS COVERED • A)WHILE IT IS AT WORK OR AT REST • B) WHILE BEING DISMANTLED FOR CLEANING OR OVERHAULING OR • C) REASSEMBLING THEREAFTER • THE MACHINERY IS COVERED WHILE THE SAME IS LYING AT CONTRACTOR’S OWN PREMISES OR AT THE VARIOUS SITES/ LOCATIONS .TRANSIT RISKS FROM ONE SITE TO ANOTHER ARE NOT COVERED

CONTRACTORS PLANT & MACHINERY(CPM) POLICY Contd.. • PRINCIPAL EXCLUSIONS- • ELECTRICAL/MECHANICAL BREAKDOWN • WAR AND WARLIKE PERILS/NUCLEAR RISKS • WILFUL ACT/WILFUL NEGLIGENCE OF INSURED/REPRESENTATIVE • OVERLOAD TESTS/EXPERIMENTS • EXCHANGEABLE PARTS /TOOLS • TOTAL/PARTIAL IMMERSION IN TIDAL WATERS OR WHILST WORKING UNDERGROUND • EXCESS • POLICY EXTENTIONS— • T.P.LIABILITY • SURROUNDING PROPERTY/DEBRIS REMOVAL • OVERTIME WAGES /EXPRESS FREIGHT

BOILER & PRESSURE PLANT POLICY • BOILERS GENERATE STEAM WHICH IS USED IN VARIOUS PROCESSES IN INDUSTRIES.STEAM IS ALSO USED IN THERMAL POWER PLANTS TO DRIVE THE TURBINES. • PROPERTY COVERED- • BOILERS /ECONOMISERS/SUPER HEATERS/ STEAM PIPES/ PRESSURE VESSELS /OTHER VESSELS UNDER STEAM GAS OR AIR PRESSURE

BOILER & PRESSURE PLANT POLICY…contd • PERILS COVERED-POLICY COVERS EXPLOSION OR COLLAPSE OF THE INSURED BOILER/PRESSUER VESSEL RESULTING IN: • DAMAGE TO BOILER/PRESSURE PLANT • DAMAGE TO SURROUNDING PROPERTY OF THE INSURED • LIABILITY TO THIRD PARTY • POLICY ALSO COVERS EXPLOSION CAUSED BY IGNITION OF FLUE GASES • MAJOR SXCLUSIONS-FIRE AND SPECIAL PERILS,WAR AND NUCEAR PERILS,EXTERNAL EXPLOSION

BOILER & PRESSURE PLANT POLICY…contd • SUM INSURED=CURRENT NEW REPLACEMENT VALUE INCLUSIVE OF FREIGHT/CUSTOMS DUTY/ERECTION COST • DEFINITIONS- • BOILER-ANY FIRED CLOSED VESSEL/COMBINED CONTAINER PIPING SYSTEM IN WHICH STEAM IS GENERATED UNDER PRESSURE • PRESSURE PLANT-ANY UNFIRED CLOSED CONTAINER UNDER STEAM/GAS/FLUID PRESSURE

MACHINERY LOSS OF PROFIT POLICY(MLOP ) AND BOILER/PRESSURE PLANT LOSS OF PROFIT (BPPLOP) • POLICY COVERS BUSINESS INTERRUPTION LOSSES CONSEQUENTIAL UPON MATERIAL DAMAGE AS DEFINED IN THE RESPECTIVE POLICIES • POLICY PROVIDES INDEMNITY AGAINST- • LOSS OF NET PROFIT • LOSS OF INSURED STANDING CHARGES • INCREASED COST OF WORKING • …ON THE LINES OF FIRE LOP.HOWEVER,UNLIKE FIRE LOP,THE INSURED CAN SELECT THE KEY ITEMS OF PLANT/ MACHINERY FOR M.D.+LOP

ADVANCED LOSS OF PROFIT(ALOP) • ALOP IS ALSO KNOWN AS DELAY IN START-UP • SCOPE OF COVER • POLICY COVERS FINANCIAL CONSEQUENCES • OF A PROJECT BEING DELAYED BECAUSE OF ACCIDENTAL DAMAGE TO THE PROJECT MATERIAL DURING ERECTION/TESTING STAGES. • IT FOLLOWS IN PRINCIPLE THE CHARACTERISTICS OF AN ANNUAL CONSEQUENTIAL LOSS POLICY, BUT IS ISSUED IN ADVANCE OF THE ACTUAL COMMENCEMENT OF THE BUSINESS SINCE IT IS A COMPULSION FROM THE FINANCERS OF THE PROJECT

ADVANCED LOSS OF PROFIT(ALOP)…contd. • OBJECT OF ALOP- • INDEMNIFY THE PRINCIPAL OR THE PROJECT OWNER FOR THE ACTUAL FINANCIAL LOSS SUSTAINED DUE TO DELAY IN COMMENCEMENT OF COMMERCIAL OPERATIONS OF A NEW PROJECT WHICH IS UNDER INSTALLATION/ CONSTRUCTION • DELAY MUST BE CAUSED BY DIRECT PHYSICAL LOSS OR DAMAGE ADMISSIBLE UNDER MATERIAL DAMAGE CAR/EAR POLICIES COVERING THE CONTRACT WORKS • SUM INSURED IS COMPUTED ON THE BASIS OF THE FINANCIAL MODEL OF THE PROJECT

DETERIORATION OF STOCK POLICY • (DOS) • THE POLICY IS KNOWN AS - • 1. DETERIORATION OF STOCK INSURANCE OR • 2. STOCK SPOILAGE INSURANCE • SCOPE- THIS IS A FORM OF CONSEQUENTIAL LOSS FOR STOCKS CONTAINED IN LARGE COLD STORAGES • THE INSURANCE COVER IS AGAINST THE RISK OF DETERIORATION/PUTREFACTION AND/OR CONTAMINATION FOLLOWING BREAKDOWN OF REFRIGERATION PLANT/MACHINERY,A CLAIM FOR WHICH IS ADMISSIBLE UNDER THE CONCURRENT MACHINERY INSURANCE POLICY ON THE REFIGERATION PLANT

DETERIORATION OF STOCK POLICY …contd. • TWO TYPES OF POLICIES- • 1. POTATOES IN COLD STORAGE • 2. OTHER THAN POTATOES IN COLD STORAGE • Eg. SEA FOODS LIKE FISH /PRAWNS/FROG LEGS , DAIRY PRODUCTS LIKE CHEESE/BUTTER, FRUITS,VEGETABLES AND FOOD ITEMS • INSURANCE COVER APPLIES TO DETERIORATION OF CONTENTS CAUSED BY A RISE IN TEMPERATURE DUE TO MATERIAL DAMAGE TO REFRIGERATION PLANT OR ACTION OF REFRIGERANT ESCAPING FROM THE PLANT • POLICY MAY BE EXTENDED TO COVER FOES

ELECTRONIC EQUIPMENT POLICY • THE POLICY IS SPECIFICALLY DESIGNED FOR ELECTRONIC EQIUPMENTS LIKE- • COMPUTORS INCLUDING CPU/KEYBOARD/ MONITOR/ PRINTER/STABILIZER/UPS/SERVER/SYSTEMS SOFTWARE • ELECTRONIC DATA PROCESING (EDP) EQUIPMENT • ELCTRO-MEDICAL EQUIPMENT • EQUIPMENT FOR RESEARCH AND MATERIAL TESTING • TELECOMMUNICATION AND NAVIGATIONAL EQUIPMENT • COMPUTER SYSTEM FOR PRODUCTION PLANT AND MACHINERY • SIGNAL AND TRANSMITTING UNITS ETC.

ELECTRONIC EQUIPMENT POLICY…contd • THE POLICY WILL APPLY ONLY AFTER SUCCESSFUL COMPLETION OF THE PERFORMANCE/ ACCEPTANCE TEST OF THE INSURED ITEMS AND COVER WILL CONTINUE WHETHER THEY ARE WORKING,AT REST,DISMANTLED FOR CLEANING/OVERHAULING,SUBSEQURNT RE-ERECTION OR BEING SHIFTED WITHIN THE PREMISES. • SCOPE OF COVER • POLICY COMPRISES THREE SECTIONS • SECTION I-- COVERS ANY SUDDEN AND UNFORESEEN PHYSICAL LOSS/DAMAGE DUE TO ANY CAUSE(OTHER THAN THOSE SPCIFICALLY EXCLUDED).THUS,THE COVER IS ALL RISK AND INCLUDES LOCATION/OPERATIONAL/ AOG/HUMAN ELEMENT RISKS. • SUM INSURED UNDER SECTION I=CNRV

ELECTRONIC EQUIPMENT POLICY…contd • SPECIAL EXCLUSIONS TO SECTION I- • FAULTS OR DEFECTS EXISTING AT THE TIME OF COMMENCEMENTS OF THE INSURANCE • FAILURE OR INTERRUPTION OF ANY GAS , WATER OR ELECTRICITY SUPPLY. • LOSS OR DAMAGE FOR WHICH THE MANUFACTURERS OR SUPPLIERS ARE RESPONSIBLE BY LAW OR UNDER CONTRACT • LOSS /DAMAGE TO EXCHANGEABLE TOOLS, BULBS,VALVES, TUBES, RI BBONS, BELT ETC. OR ANY OPERATING MEDIA (E.G.LUBRICATING OIL ETC.)UNLESS SUCH LOSS IS CAUSED BY INDEMNIFIABLE PERILS

ELECTRONIC EQUIPMENT POLICY…contd • SPECIAL EXCLUSIONS TO SECTION I-…contd. • THE EXCESS STATED IN THE SCHEDULE.THIS VARIES ACCORDING TO THE VALUE OF EQUIPMENT. • ANY COST ARISING FROM FALSE PROGRAMMING, PUNCHING OR INADVERTENT CANCELLING OF INFORMATION ETC. • CONSEQUENTIAL LOSS OF ANY KIND • WEAR AND TEAR,GRADUAL DETERIORATION DUE TO ATMOSPHERIC CONDITIONS • ELIMINATION OF ROUTINE FUNCTIONAL FAILURES • GENERAL EXCLUSIONS APPLICABLE TO ALL SECTIONS- • WAR PERILS/NUCLEAR PERILS/WILFUL ACT/NEGLIGENCE etc.

EXTERNAL DATA MEDIA-SECTION II • COVERAGE FOR EXTERNAL DATA MEDIA WILL BE AGAINST THE SAME PERALS COVERED UNDER SECTION I • SUM INSURED=COST OF RESTORING THE INSURED EXTERNAL DATA MEDIA BY NEW MATERIAL AND REPRODUCING LOST INFORMATION • COVERAGE UNDER SECTIONS II AND III IS OPTIONAL

INCREASED COST OF WORKING … SECTION III • THIS SECTION COVERS ADDITIONAL COST INCURRED DURING INDEMNITY PERIOD IN ORDER TO AVOID INTERRUPTIONAL DATA PROCESSING • SUM INSURED– INSURED MUST DECLARE THE INDEMNITY LIMIT PER HOUR AND ALSO THE TOTAL SUM INSURED.TOTAL SUM INSURED WILL REPRESENT THE AGGREGATE LIMIT OF INDEMNITY PAYABLE FOR ALL EVENTS OCCURING DURING THE PERIOD OF INSURANCE

ENGINEERING INSURANCE