Get to know EAR (Erection All Risks) Insurance

In every job there must be risks that can interfere process of completing a project. Such risks can be in the form of failure, damage, loss or accidents resulting in injury to workers. All of these risks certainly have consequence of financial loss.

Therefore, in general insurance it is known products that provide protection or cover against the risks of erection works in civil engineering projects such as structural work, installation of machines, assembling steel components into frames and other similar works. Not only that, the Erection All Risks (EAR) insurance policy also covers the risk of liability for third party bodily injury or property damage incurred. By having an EAR, the contractor/sub-contractor/project owner as the party in charge of the project can transfer the risks of damage or loss to the insurance company.

In Indonesia, standard policy of EAR policy commonly used is the Munich Re standard EAR policy. The cover provided in an EAR policy is usually divided into two sections, namely section I: cover for Material Damage and section II: cover for Third Party Liability (legal liability to third parties).

For Material Damage (MD) Cover, the insured objects or items include:

1.      Erection work (installation work) which usually includes the objects to be installed, freight (transportation costs), custom duties (import duties), and cost of erection (installation costs).

2.      Civil engineering work: part of the overall work, such as making the foundation work for machine to be installed.

3.      Cost of clearance of debris (cost of cleaning/removing debris).

4.      Surrounding property: objects or items on the project that are the property of the project owner or that are stored and under the supervision of the project owner.

Meanwhile for Third Party Liability (TPL) Cover, the objects or items that are usually insured are:

1.      TPL relating to bodily injury, including death or illness from a third party.

2.      TPL relating to property damage/property belonging to third parties.

3.      TPL relating to law costs and expenses, namely all costs and costs of litigation obtained by the claimant from the insured, and all costs and expenses incurred with the written approval of the insurer.

The EAR policy in general covers all risks of physical loss or damage that occurs suddenly and unexpectedly (sudden and unforseen), as well as any cause (from any cause) as long as it is not excluded from the policy on the objects or items insured.

The affirmation "from any cause" is an indication that with respect to the objects or items insured under Material Damage Cover, the coverage provided by the EAR Policy is very wide or also termed as all risks, even though in reality there are exceptions.

Thus, the risks covered by the EAR Policy are fire, lightning strike, explosion, aircraft impact, fire fighting measures, flood, rain, hurricane, theft, earthquake, volcanic eruption, and so on as long as they are not excluded from the police.

There are two types of excluded risks in the EAR Policy namely general exclusions and special exclusions. General exclutions apply to both Material Damage Cover and Third Party Liability Cover. Meanwhile, special exclusions are divided into 2 (two) groups, namely special exclusions which only apply to Material Damage Covers and special exclusions which only apply to Third Party Liability Covers.

The risks excluded based on general exclusions are risks of loss, damage or liability which are directly or indirectly caused by or arising from war, invasion, acts of foreign enemies, hostilities, civil wars, rebellions, revolutions, riots, strikes, barriers to work entry, civil disturbances, takeover of power, malicious acts committed by persons on behalf of or in connection with political organizations, conspiracy, confiscation or destruction at the behest of the government or the orders of the authorities. In addition, there are also risks such as nuclear reactions, nuclear radiation or radioactive contamination, intentional act of the insured, and termination of employment, whole or part.

The EAR insurance premium rate is usually determined as a lump sum premium for the entire period of service, while the premium is calculated based on the product of the total sum insured of the insured objects and the premium rate that has been agreed upon by the insurer and the insured. The premium rate ranges from 0.12% to 0.20% depending on underwriting factors such as the type of development project, risk location, contract value, contractor experience, work schedule, and terms and conditions.

For the purposes of Material Damage Cover in an EAR policy, each object or item insured is sum insured individually and separately; the sum of all the sum insured becomes the total sum insured. The total sum insured in addition to being the basis for calculating the premium, the total sum insured is also the limit of liability or maximum liability of the insurer in the event of a loss that results in a claim (in this case, a claim on a Material Damage policy).

Meanwhile, for the purposes of Third Party Liability Cover in the EAR policy for each object or item insured limit of indemnity is not maximum responsibility or liability of the insurer in terms of TPL claims.

The EAR policy has a coverage period that is from the start of work and ends on the part of the work contract that has been handed over or after the first trial or load test (testing and commissioning) plus a maintenance period.

When an event occurs that can give rise to a claim under the policy, the insured must do the following:

1.    The Insured must immediately notify (by telephone, telegram or in writing) to Insurer regarding incident that has occurred, indicating the nature and magnitude of loss or damage.

2.    The Insured shall take steps within his ability to minimize loss or damage.

3.    The insured must maintain and prepare the damaged parts to be inspected by representative or surveyor of the insurer.

4.    The Insured must submit to the insurer about information or evidence documents if required by the insurer.

5.    In the event of loss or damage due to theft or burglary, the insured must report the matter to the police.