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Construction All Risk (CAR) vs Erection All Risk (EAR) Insurance: Getting It Right In Solar EPCC Contracts
Introduction
One of the critical yet often overlooked aspects of Engineering, Procurement, Construction, and Commissioning (EPCC) contracts for solar projects is insurance coverage. While most employers and contractors recognise the need for project insurance, a common misconception persists in which some employers require contractor to procure Construction All Risk (CAR) Insurance, when in reality, Erection All Risk (EAR) Insurance is the more suitable coverage for solar projects.
Despite attempts to clarify the difference, some employers remain firm in their stance, not wanting to understand the differences between both CAR and EAR insurance. To address this, let’s break down the key differences.
Understanding CAR vs EAR Insurance
Both CAR Insurance and EAR Insurance provide coverage for risks associated with construction projects. However, their scope differs significantly:
| Description | Construction All Risk (CAR) | Erection All Risk (EAR) |
|---|---|---|
| Purpose | Covers civil engineering works (e.g. constructing roads, buildings, bridges). | Covers mechanical & electrical installations (e.g. installation of solar panels, erecting power plants, steel structures). |
| Coverage Scope | Loss and damage to structures, building materials, and civil works. | Loss or damage in respect of all risks involved in the erection and installation of machinery, plant facilities and steel structures. |
| Typical Projects | Commercial and industrial building construction, residential construction, civil infrastructure. | Power plants, renewable energy installations (including solar PV systems), erection of oil and gas related facilities. |
| Testing & Commissioning | Limited coverage, may require an endorsement. | Includes testing & commissioning. |
Why EAR Insurance is the Right Choice for Solar EPCC Projects?
Solar EPCC projects involve significant mechanical and electrical components, such as:
- Solar PV modules
- Inverters
- Transformers
- Battery Energy Storage Systems (BESS)
- Grid connection works
- Electrical switchboards
- Cabling
Since these components require erection, testing, and commissioning, they fall under the scope of EAR Insurance rather than CAR Insurance.
Despite the above, some employers continue to insist on CAR Insurance, either due to:
- Lack of awareness about the differences; or
- A standard practice from civil construction contracts being mistakenly applied to solar projects.
The continued insistence on CAR Insurance for solar EPCC projects highlights the gap in understanding between industry standards and contractual expectations. While CAR Insurance may be well-suited for traditional construction projects, its limitations in covering mechanical and electrical components make it an insufficient safeguard for solar installations. Ensuring the correct insurance coverage is not about following past practices, but about aligning risk protection with the nature of the project.
Conclusion
Choosing the right insurance coverage is not just a formality in the EPCC contract. It is a crucial risk management decision. In solar EPCC projects, EAR Insurance is the appropriate coverage as it protects key electrical components and covers risks during installation, testing, and commissioning.
As legal professionals, it is imperative that we understand industry standards rather than leaving these considerations entirely to the contracting parties. Employers must also be aware of industry best practices and appropriate risk allocation, while contractors should not accept contractual terms without fully understanding their implications.
Together, we build a more professional, well-informed, and fair contracting environment, ensuring that risks are properly managed, and all parties are adequately protected.
This Article is written by Yeo Shu Pin (Partner) of Messrs. Shu Pin & Associates.
Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the author(s) for a specific technical or legal advice on the information provided and related topics.