Erection All Risk (EAR)

What EAR is

Erection All Risk (EAR) insurance covers physical loss or damage during the erection, installation and testing of machinery, equipment and steel structures. It is the counterpart of Contractors All Risk: CAR is for civil construction works, EAR is for putting plant together and bringing it to life.

Contracts and lenders commonly require it for power plants, refineries, manufacturing units and other projects that involve installing heavy machinery. Like CAR it is an all-risk cover, so it responds to physical loss or damage from any cause the policy does not exclude.

The period of cover, phase by phase

The policy protects the equipment at the site through three stages: storage, erection and commissioning tests. Getting the equipment to the site is a separate matter. Inland transit, from the manufacturer or the port to the project site, is not automatically included and must be specifically added by extension. Overseas shipment is insured under marine cargo, not under EAR.

Testing and commissioning is considered the highest-risk phase, especially hot testing. The machinery is being operated for the first time, and an unexpected fault at that moment can cause significant damage. A unit that sat safely in storage for months and was erected without incident can still be lost on the day it is first run.

Sum insured and combined policies

The sum insured must cover the full replacement value of the equipment plus all erection, installation and commissioning expenses. Insuring the invoice value of the machines alone leaves out the cost of putting them up again, and the result is under-insurance.

Many projects have both civil works and machinery, for example a factory building with a production line installed inside it. A combined CAR-EAR policy is issued for such projects so that no gap opens between the civil cover and the erection cover.

What stays outside

EAR pays for physical loss or damage. Loss of production revenue because the plant started late is a consequential loss and is excluded from a standard EAR policy. It can be covered by a Delay in Start-up (Advance Loss of Profits) extension, which responds when insured damage delays the project.

Defect-related losses are governed by the LEG clauses, as in CAR: LEG 1/96 excludes all loss due to defects, LEG 2/96 excludes the cost of remedying the defective part but covers resulting damage, and LEG 3/96 is the widest.

Rules at a glance

Key points

• EAR covers the erection, installation and testing of machinery, equipment and steel structures, not civil construction works.
• Cover at site runs through storage, erection and commissioning tests.
• Testing and commissioning, especially hot testing, is the highest-risk phase.
• The sum insured is the full replacement value of the equipment plus erection, installation and commissioning expenses.
• Inland transit must be specifically added; overseas shipment belongs under marine cargo insurance.
• Loss of production revenue is excluded unless a Delay in Start-up extension is taken, and that needs insured damage.

Common misunderstandings

• EAR is not for civil works: a project with both building and machinery uses a combined CAR-EAR policy.
• Transit is not automatically inside EAR: inland transit has to be added, and overseas shipment is a marine cargo matter.
• The quiet storage months are not the main danger: testing and commissioning is the highest-risk phase.
• A delayed start is not itself an EAR claim: revenue loss needs a Delay in Start-up extension and insured damage behind the delay.

Questions people ask