CAR vs EAR Insurance: Key Differences Explained

Understanding the Fundamental Difference

Contractors All Risks (CAR) and Erection All Risks (EAR)insurance are both forms of construction insurance, but they're designed for fundamentally different types of projects. Choosing the wrong one can leave you with significant coverage gaps.

The simplest way to understand the difference: CAR is for building things, EAR is for installing things. But in practice, many projects involve both, which is where careful policy selection becomes critical.

What is CAR Insurance?

Contractors All Risks insurance provides coverage for construction projects involving building and civil engineering works. This includes:

• Buildings: Commercial, residential, industrial structures
• Infrastructure: Roads, highways, bridges, tunnels
• Civil works: Dams, ports, airports, railways
• Renovations: Major refurbishment and extension projects

CAR policies cover physical loss or damage to the works during construction, including materials, temporary works, and third-party liability. However, testing coverage is typically limited to basic functional tests rather than full performance testing.

What is EAR Insurance?

Erection All Risks insurance is specifically designed for projects involving the installation, erection, and commissioning of machinery and equipment. Common EAR projects include:

• Power generation: Turbines, generators, boilers
• Industrial plants: Refineries, chemical plants, steel mills
• Manufacturing: Production lines, assembly equipment
• Utilities: Water treatment, substations, transmission equipment

The critical difference is that EAR policies include comprehensive coverage during testing and commissioning—the phase where machinery is most vulnerable to breakdown and damage. This includes "hot testing" under operational conditions.

Side-by-Side Comparison

The Critical Testing Difference

The most important distinction between CAR and EAR is how they handle testing and commissioning:

CAR Testing Coverage

Standard CAR policies typically only cover "cold testing"—basic checks that don't involve running equipment under operational conditions. Testing coverage is limited because CAR assumes the project is primarily about construction, not equipment performance.

EAR Testing Coverage

EAR policies include comprehensive testing coverage because machinery installation projects inherently require extensive commissioning. This includes:

• Cold testing: Initial checks and dry runs
• Hot testing: Running under operational conditions (with fuel, steam, etc.)
• Performance testing: Proving equipment meets specifications
• Load testing: Running at various capacity levels

When to Use Each Policy Type

Use CAR When:

• The project is primarily building or civil engineering construction
• Machinery/equipment is minimal or not integral to the project
• Testing requirements are basic and don't involve hot commissioning
• Examples: Office buildings, roads, bridges, residential developments

Use EAR When:

• The project involves significant machinery or plant installation
• Equipment will undergo extensive testing and commissioning
• Hot testing or performance testing is required
• Examples: Power plants, manufacturing facilities, process plants

Use Combined CAR/EAR When:

• The project involves both substantial construction AND machinery installation
• There's a significant civil works component plus equipment erection
• Examples: New power plant (building + turbines), factory construction with production lines

Handling Hybrid Projects

Many modern projects involve both construction and machinery installation. For example, a data center project includes:

• Building construction (CAR territory)
• Power systems and cooling equipment installation (EAR territory)
• IT infrastructure (may need separate coverage)

For hybrid projects, you have several options:

1. Combined CAR/EAR policy: A single policy covering both aspects
2. Separate policies: CAR for construction, EAR for machinery (requires careful coordination)
3. CAR with EAR extension: CAR policy with additional machinery coverage

The combined policy approach is usually preferable as it avoids gaps and disputes between policies about which one responds to a loss.

How Premiums Are Calculated

Premium calculation differs between CAR and EAR:

CAR Premium Basis

• Based on total contract/construction value
• Includes labor, materials, and contractor's margin
• Typical rates: 0.15% - 0.50% of contract value (varies by risk)

EAR Premium Basis

• Based on equipment value plus erection costs
• Testing period duration affects premium
• Typical rates: 0.20% - 0.60% of insured value (varies by equipment type)

Claims Examples

Covered Under CAR (Not EAR)

• Collapse of partially constructed building due to storm
• Flood damage to excavation works
• Fire in temporary site offices
• Third-party injury from falling construction materials

Covered Under EAR (Not Standard CAR)

• Turbine damage during hot commissioning
• Generator failure during load testing
• Control system damage during performance trials
• Boiler damage during steam testing

Best Practices for Policy Selection

1. Analyze your project scope: What's the primary nature—construction or installation?
2. Consider testing requirements: Will there be hot commissioning or performance testing?
3. Review contract requirements: What does the contract specify for insurance?
4. Consult specialists: For complex projects, get expert advice
5. Don't choose on price alone: Wrong policy type = no coverage when you need it