Report on Different Policies Required for an Upcoming Project

8/8/2019 Report on Different Policies Required for an Upcoming Project

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REPORT ON DIFFERENT

POLICIES REQUIRED FOR AN

UPCOMING PROJECT

Team Members:-

Abhishek Khandelwal

Abhishek Malik

Akash Goel

Akshay Guglani

Amit Sinha

Anish Gupta


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What exactly is a risk?

"RISKS" are simply future issues that can be avoided or mitigated, rather than present

problems that must be immediately addressed.

In risk management, the term "hazard is used to mean an event that could cause harm and

the term "risk" is used to mean simply the probability of something happening.

Insurance is a risk-reducing investment in which the buyer pays a small fixed amount to be

protected from a potential large loss.

In business

Means of assessing risk vary widely between professions. Indeed, they may define these

professions; for example, a doctor manages medical risk, while a civil engineer manages risk

of structural failure. A professional code of ethics is usually focused on risk assessment and

mitigation (by the professional on behalf of client, public, society or life in general).

In the workplace, incidental and inherent risks exist. Incidental risks are those that occur

naturally in the business but are not part of the core of the business. Inherent risks have a

negative effect on the operating profit of the business.


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Coverage which can be provided

Construction all risks

Delay in start up/ALOP Marine*

Marine delay in start up

Third party liability

Public liability

Sabotage and terrorism

Employers liability

Motor

D

irectors and officers Kidnap and ransom

Political risk

Flood, earthquake and windstorm

Mortgage

Business interruption

Legal expense

Reinsurance

Fire

Fidelity guarantee


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Political Risk

A. Foreign Contractso

Non-payment by Government buyerso Unfair calling On Demand bonds

o Non-honouring ofLetters ofCredit

o Non-delivery of pre-paid goods

o War, Civil War or Revolution (CF)

o Contract Repudiation by government buyers

o Non-performance by government buyers

B. Foreign investmentso Forced abandonment

o Confiscation, nationalisation and deprivation

o Currency Inconvertibility

o Political Violence (property damage)

o Breach of Government Undertaking

o Business Interruption

Terrorism insurance

y Property damage and business interruption

y

Delay in start-up / construction risksy Loss of rent for real estate companies

y Strike, riot, civil commotion

(Sabotage) per endorsement


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Carbon Credit

y Insurance for loss of carbon Credits

y Large Projects

y Becoming popular

CONSTRUCTION INSURANCE

y Plant and Equipment

y Professional Indemnity

y Motor

y Employers Liability

y Liquidated Damages

y Performance Guarantees

Factors affecting Rating

y Insurance market scenario

y Quality of underwriting information

y Experience of the contractors /owners

y Type of technology

y Risk retention

y Loss record


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Mistakes often committed

y Last moment rush

y Did not see the wordings we bought

y Indemnity Limits

y Insurance policy does not comply with the Lenders requirements

y Extensions of insurance covers not taken into account for project delays

y Internal communication on Insurance covers do and donts project site

not aware of conditions nor your contractors

Public liability

Industry and commerce are based on a range of processes and activities that

have the potential to affect third parties (members of the public, visitors,

trespassers, sub-contractors, etc. who may be physically injured or whose

property may be damaged or both). It varies from state to state as to whether

either or both employer's liability insurance and public liability insurance have

been made compulsory by law. Regardless of compulsion, however, most

organizations include public liability insurance in their insurance portfolio even

though the conditions, exclusions, and warranties inc luded within the standard

policies can be a burden. A company owning an industrial facility, for instance,

may buy pollution insurance to cover lawsuits resulting from environmental

accidents.

Many small businesses do not secure general or professional liability insurance

due to the high cost of premiums. However, in the event of a claim, out -of-

pocket costs for a legal defence or settlement can far exceed premium costs In

some cases, the costs of a claim could be enough to shut down a smallbusiness.

Businesses must consider all potential risk exposures when deciding whether

liability insurance is needed, and, if so, how much coverage is appropriate and

cost-effective. Those with the greatest public liability risk exposure are

occupiers of premises where large numbers of third parties frequent at l eisure


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including shopping centres, pubs, clubs, theatres, sporting venues, markets,

hotels and resorts. The risk increases dramatically when consumption of

alcohol and sporting events are included. Certain industries such as security

and cleaning are considered high risk by underwriters. In some cases

underwriters even refuse to insure the liability of these industries or choose to

apply a large deductible in order to minimize the potential compensations.

Private individuals also occupy land and engage in p otentially dangerous

activities. For example, a rotten branch may fall from an old tree and injure a

pedestrian, and many ride bicycles and skateboards in public places. The

majority of states require motorists to carry insurance and criminalise those

who drive without a valid policy. Many also require insurance companies to

provide a default fund to offer compensation to those physically injured in

accidents where the driver did not have a valid policy .

Employers liability

New policies have been developed to cover any liability that might be imposed

on an employer if an employee is injured in the course of his or her

employment. In many states, the insurers are prohibited from including

conditions within their policies that seek to impose any unreasonable

conditions precedent to liability, or require the insured either to take

reasonable precautions or to comply with current legislation and regulations.

In those countries where such insurance is not compulsory, smallerorganizations are often driven into bankruptcy when faced by claims not

covered by insurance.

Note that in the United KingdomEmployers Liability Insurance is compulsory,

unless the only employee is the owner of the company (who holds at least 50%

of the shares) or the business is a family business which is not incorporated as

a limited company.

Workers' compensation in the United States in most states operates through

administrative adjudication outside of the federal and state courts; in turn,workers' comp insurance is regulated and underwritten separately from

liability insurance. That is, most businesses will go to a liability insurer for a

Commercial General Liability policy, and to a specialized workers' comp insurer

for a workers' comp policy (which is usually compulsory unless the em ployer

can demonstrate the capability to self-insure for workers' comp).


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DIRECTORS AND OFFICERS LIABILITY INSURANCE (D&O)

The D&O policy provides cover for the personal liability ofDirectors and

Officers arising due to wrongful acts in their managerial capacity. Defence

costs are also covered and are payable in advance of final judgment. This policy

provides protection for claims brought against directors, officers and

employees for actual or alleged breach of duty, neglect, misstatements or

errors in their managerial capacity.

Why is a Directors and Officers liability insurance policy required?

Some of the specific exposures that make D&O insurance necessary for the

Directors and Officers are:

y Vulnerability to shareholder/stakeholder claims

y Sexual harassment, discrimination allegations and other employment practice

violations

y Regulatory investigations

y Accounting irregularities

y Exposures relating to mergers and acquisitions

y Corporate Governance requirementsy Compliance with various legal statutes


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Marine insurance

Marine Insurance covers the loss or damage of ships, cargo, terminals, and any

transport or cargo by which property is transferred, acquired, or held between

the points of origin and final destination.

Cargo insurancediscussed hereis a sub-branch of marine insurance, though

Marine also includes Onshore and Offshore exposed property (container

terminals, ports, oil platforms, pipe .

Scope of Cover:-Institute Time Clauses

These are the main clauses and most important in Marine Hull policies. TimeClauses covers for a specific period usually 12 months. As the nature and

degree of risks which the Insurer run vary according to the kind of vessel, there

exist a number of categories in the Time Clauses. They are : -

y Institute Time Clauses (Hull)

y Institute Time Clauses (FPA)

y Institute Time Clauses (Total Loss Only)

1. Institute Time Clauses (Hull)

Provides the maximum coverage offered by hull insurance.

Perils Covered

a. Perils of the sea

b. Fire & explosion

c. Violent theft

d. Piracy

e. Breakdown of accident to nuclear installations etc.

f. Contact with aircraft

g. Earthquake, volcanic eruptions or lightning

h. Accidents in loading etc.

i. Bursting of boilers

j. Breakage of shaft

k. Latent of defect

l. Negligence of masters etc.

m. Negligence of repairers etc.


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n. Negligence of charterers etc.

o. Barratry

Excluded Perils

p. Wilful misconduct of the Assured

q. Loss caused by delays

r. Wear and tear

s. Rats and/or vermin

t. Injury to machine not proximately caused by maritime peril

Paramount Exclusions In The Policy

u. Warv. Strikes

w. Malicious acts

x. Nuclear exclusion

Other Losses &Expenses Covered

y. Pollution Hazard

z. 3/4th

Collision Liability

aa. General Average and Salvage

ab. Sue and Labourac. Constructive Total Loss

2. Institute Time Clauses (FPA)

The coverage of these clauses are similar to that of Hulls Clauses but

exclude coverage on machinery damages in all respects.

It is advised that all vessels which exceed 15 years of age or older, if the

risk accepted, to give this coverage only. If machinery damage is

excluded due to limitation of this clause, there is a better chance of

making hull underwriting profit.

3. Institute Time Clauses Hulls (Total Loss Only)

As the name suggested, this clause only covers in the event of it

becoming a total loss by arrangement, actual, compromised or

constructive total loss.


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Electronic Equipment Insurance

INTRODUCTION:The term Electronic Equipment (EE), in the context of this branch of

Engineering Insurance, comprises of all electrical system which generally have

only a low current. There is a very wide range of such equipments such

Computers, Micro Processors,Word Processors, Telecommunication

Equipments, Machines meant for Medical and Ophthalmic use, Aviation

Equipments, T.V. Studio Equipments, Process Control Equipments, Equipments

for Computer/ Numerical control of machine tools and special purpose

machines, etc. The electronics first appeared in the industry in the 50s.

Transition from mechanical and electrical monitoring and contr ol to electronics

has been accelerating at a breath- taking pace. Now there is hardly any field of

technology or industry which is not touched electronics. EE insurance is

therefore, of immense importance to the users of electronic equipments, may

they be the owners, operators, maintainers.

SCOPE OF COVER:

The E.E. Insurance is a Comprehensive Accident Insurance covering

unforeseen loses which arise suddenly and cause material damage to the

equipment from any of the following perils:-

y Location perils: Fire, Lightning, Explosion, Theft, Burglary and House

Breaking.

y Operational Risks:Electrical/ Mechanical Breakdown, Faulty Design,

Faulty Material, Faults in manufacturing assembling, erection, Moisture

and humidity.

y Risks of Human Element: Faulty/ Careless/ negligent operation, Riot,

Strike and Malicious damage.

y Acts of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,

Subsidence, Landslide, Rock slide, Earthquake.

EXCLUSION:

The insurance cover is, however, subject to a few exclusions listed in the policy

which are applied internationally and are common to the insurance industry.

EXTENSIONS:


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Apart from the Material damage to the insured equipment, scope of cover

available under an EE policy may be extended to cover the following on specific

request:-

Data Media Insurance:

Cover may be obtained for financial loss that may arise from accidental loss of

information data stored on the external data media such as diskettes and

floppies. Cover is provided on a First Loss basis both for the materials value of

the data media and the cost of reprocessing and restoring lost information.

Increased Cost of Working Insurance:

In the event of a breakdown of the insured computer, the required computing

capacity may have to be hired from other sources. Cover may be obtained for

reimbursement of these additional expenses involved such as hire charges,

transportation cost etc.

Machinery Breakdown Insurance

INTRODUCTION:

This Branch ofEngineering Insurance has been developed to grant the Industry

an effective insurance cover for Plant, Machinery and other mechanical

equipment. It is an extremely useful Policy for protecting the Plant and

Machinery against operational accidental damages. It even insures the

machines against damage while these are idlin g and/ or under repairs, due to

such non-operational causes as external impact, etc. The insured is permitted

to select the machinery to be insured under the Policy, but has to offer a

complete machine for insurance and not opt only for vulnerable parts. S uch

items having a short service life listed here under compared to the entire plant

are however, normally excluded:-

y All types of interchangeable tools.

y Sieves, engraved, cylinders, stamps, dies, ropes, chains, belts.

y Parts made of glass, ceramic or wood, rubber tyres.


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y Operating media of any kind such as fuel, gas, refrigerant, catalysts,

lubricant (oil in transformers and circuit breakers is, however, included

since it is not only a coolant but also serves as an insulation agent).

It is advisable to make distinction between plant and Machinery and Electronicequipment such as computers, microprocessor based controls and large

process control instrumentation and systems which are predominantly

electronic in nature. It is more economical and beneficial for the insured to get

coverage for such equipment under Electronic Equipment policy instead of

insuring it under Machinery Insurance policy. This policy is available only after

the newly installed equipment has been successfully commissioned and has

proved its operational/ productive worthiness.

SCOPE OF COVER:

Machinery Insurance is an Accident cover for machinery supplementing the

coverage offered by a Fire Insurance Policy. It basically covers unforeseen and

sudden physical loss of or damage to the insured items.\, necessitating their

replacement or repair mainly arising from any of the following causes: -

y Faulty design, faulty workmanship, defects in casting and material

y Faulty operation, lack of skill, negligence

y Tearing apart on account of centrifugal forces.

y Short circuit and other electrical causes.

y Damage due to accident to boiler and its allied equipment due toshortage of water/ overheating and collapse of tube/ Flue gas explosion.

The insurance cover is, however subject to a few exclusions listed in the

policy which are applied internationally and are common to the

insurance industry.

EXTENSIONS:

The Scope of cover under a Machinery Insurance Policy may be extended to

cover the following on specific request.

ADDITIONAL CUSTOM DUTY COVER:

As custom duty payable on Project Equipment import is less that the duty

applicable on replacement equipment/ Spares, it is advisable to have this

extension which takes care of additional duty payable for replacement of

equipment and/ or spares in the event of loss. The sum insured under the

policy should be taken, based on estimated extra custom spares following a


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serious breakdown. This cover is operated on First Loss basis and actual

custom duty is reimbursable subject to limits of amount.

Erection All Risks Insurance

INTRODUCTION:

In the course of execution of a project for erection of machinery, plant and

structure of any kind, certain serious mishaps could occur resulting in loss or

damage, as well as liabilities could arise in respect of Third Party claims for

property damage or bodily injuries. An Erection All Risks(EAR) insurance offers

protection to Principals and Contractors and also to manufacturers and

Suppliers erecting machinery and plant etc, against financial loss due to any

sudden unforeseen causes resulting in loss or damage to the property insured

at the project site whilst being stored, erected, rested and maintained. EAR

insurance has been designed to meet the tested and maintained. EAR

insurance has been designed to meet the needs of the market, which are fast

changing with the advancement in technology and the cover is available for

structures and projects of all sizes of Macro or Micro levels i.e. large projects

such as erection of Thermal Power Stations, Oil Refineries, Fertilizer pla nts etc,or small projects like installation ofComputers or Electrical equipment.

SCOPE OF COVER:

Ear insurance provides a very wide and comprehensive insurance cover to the

client in respect of any sort of contingency from the moment the material is

unloaded at the site of the project and continues during storage, physical

erection and till the test run is over and during maintenance, if covered. It

covers all physical losses or damages arising from:-

y Location Risks: Fire, Lightning, Theft, Burglary and House Breaking.

y Handling Risks: Impact from falling objects, Collision, Failure ofCranes,

etc.

y Testing and Commissioning Risks: Failure of Safety devices, Leakage of

Electricity, Insulation failure, Short Circuit, Explosion.

y Risks of Human Element: Carelessness, Negligence, Fault in Erection,

Strike and Riot, Malicious damage.


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Subsidence, Landslide, Rockslide, Earthquake.

The insurance cover is subject to a few exclusions listed in the Policy which are

applied internationally and are common to the insurance industry.

EXTENSIONS:

The scope of cover available under a standard EAR policy may be extended to

cover the following on specific request:-

Civil Engineering Works:

y Permanent Civil Engineering Works.

y Temporary Civil Engineering Works.

It is preferable to insure the above items under Contractors. All Risks Policy

instead of this Policy. However, machinery foundations, specific supports of

equipment etc, which must go as part of the machinery and requires to be

constructed under supervision and guidance ofEngineers of the suppliers of

equipments could be insured under the EARPolicy.

Clearance and Removal of Debris:

Major accidents or catastrophes cause devastating damages. The site maybecome unworkable and warrant clearance of area for restarting the work.

This requires considerable expenditure and at times specialized services of

experts. Under this cover, the insured is reimbursed the actual amount of

expenditure incurred towards debris removal of insured property subject to

maximum limit of 50% of the project cost.

Construction Plant and Machinery:

Every project site requires certain material handling and construction

equipments like Cranes, Hoists, Air Compressors, Welding Sets, etc. for

carrying out various erection activities. The said equipment unless alreadycovered under a separate Contractors Plant and Machinery (CPM) policy, could

be covered under this head but it is subject to terms and conditions of the CPM

Policy.

Express Freight, (other than Air Freight) Over Time, Sunday and Holiday

wages:On account of occurrence of an insured peril, some times it becomes


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necessary to undertake the repair work on war footing and also to work on

holidays. The spare parts may have to be obtained by express freight

(excluding air freight). To take care of such expenditure, an estimated amount

that would be incurred following a major accident should be taken as sum

insured. Factors to be taken into account would be the type of machinery/

plant, distance of the source of procuration, nature of transport available, type

of labor and their wage structure.

Air Freight Cover:

Specific coverage should be taken for Air Freight of items. This cover operates

on First Loss basis and actual expenses are reimbursable subject to maximum

amount chosen under this head.

Surrounding Property:

Under this extension damages caused to the surrounding property, such asproperty, such as property located on site belonging to or held in trust, care,

custody or control of the Insured, on account of accident due to erection work

is covered. Insurance of surrounding property becomes relevant when

renovation or expansion project is envisaged and the work is carried out in the

vicinity of existing assets.

Third Party Liability:

Circumstances may arise when on account of mishaps in the works, loss or

damage may be caused to third party property as well as bodily injury in which

case a liability will arise on the part of the insured to make good the loss. Such

a liability can be covered under the extension of the policy.

Escalation Clause:

It is a known fact that world economy has been experiencing upward

inflationary trend in the last four decades. This trend has jumped up

considerably during the last decade owing to various known and unknown

factors. Our country in particular has faced widespread escalation duri8ng the

last twenty years. The prices have shot up more than 3 or 4 times particularly

in respect of imported goods. Erection projects are normally for a long pe riodand it is, therefore, advisable to provide for increase in the Prime Cost of the

equipment due to escalation to ensure full protection by opting for an

Escalation Clause.

In the event of a claim arising, the Escalation Clause under the Policy provide s

indemnity to the Insured for the actual replacement cost of damaged items


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y Earthwork, Sewage, Drainage, Roads, Irrigation system, Flyovers, Canals,

Silos, Water Reservoirs and the like.

y Hazardous structures such as Tunnels, Dams, Mines, Bridges and the

like.

SCOPE OF COVER:

The Policy covers loss or damage to the subject matter from any sudden

unforeseen or accidental cause which is not specifically excluded under the

Policy. Therefore it covers all physical losses or damages occurring during the

period of insurance arising from:-

y Location Risks:Fire, Lightning, Theft, Burglary and House Breaking.

y Handling Risks: Impact from falling objects, Collision, Failure of material

handling equipments.

y Risks of Human Element:Carelessness, Negligence, Faulty material and

Construction, Riot, Strike, Malicious damage.

y Act of God Risks: Storm, Tempest, Hurricane, Flood, Inundation,

Subsidence, Landslide, Rock slide, Earthquake.

This insurance cover is subject to a few exclusions listed in the Policy which are

applied internationally and are common to the insurance industry. The cover

attaches as from the commencement of work or after the materials required

for the project have been unloaded at the site, and terminates when thecompleted structure or one completed part thereof is taken over or put into

service. The insurers liability for construction machinery, plant and equipment

commences from their unloading at the site and expires o n their removal there

form. In addition, on specific request, it is possible to extend the period of

cover to include a maintenance period.

EXTENSIONS:

The scope of cover available under a standard CARPolicy may be extended to

cover the following on specific request:-

y Clearance and Removal ofDebris.

y Construction Plant and Machinery

y Express Freight, Over-time, Sunday and Holiday Wages

y Surrounding Property

y Third Party Liability

y Escalation


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y Maintenance Visits Cover

y Extended Maintenance Cover

y Terrorism

The coverage provided under the above extensions are similar to those underEAR insurance.

Contractor's Machinery Insurance

INTRODUCTION:

The execution of almost all projects necessarily requires use of various types of

plant and machinery. The nature and the type of equipment may differ

according to the nature, type and location of a project and may even differ at

different stages of the projects. Such equipment may comprise ofCranes,

Compressors, Road-rollers, Vibrators, Welding Sets, Hydraulic Excavators and

the like. Whilst it is possible to have the Contractors plant and Machinery

covered under an EAR or CARPolicy at specific project sites, Contractors Plant

and Machinery (CPM) Insurance has been designed to provide a cover on

annual basis to a contractor who may be using his plant and machinery at

different projects during the course of the year. The cover under a CPM Policy

is not limited to a specific project site and is operative at all the sites wherever

the plant and machinery is in use and even while the same is lying at the

contractors own premises. The insurers have, however, to be informed of the

sites where the insured items are being used.

SCOPE OF COVER:A CPM Policy covers unforeseen and sudden physical loss of or damage to the

insured plant and machinery from any cause whatsoever, occurring at work

site or at rest, other than risks specifically excluded under the Policy. The cover

is also operative whilst any equipment is being dismantled for the purpose of

cleaning or overhauling and also being reassembled thereafter. The Policy,

therefore, covers all physical losses or damages arising from:-


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y Location Risks:Fire, Lightning, Theft, Burglary and House-breaking.

y Impact from Falling Objects:Collision and the like

y Risks of Human Element:Carelessness, Negligence, Riot, Strike,

Malicious Damage.


Subsidence, Landslide, Rockslide, Earthquake.

Report on Different Policies Required for an Upcoming Project

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