Contractor’s All Risks (CAR) & Erection All Risks (EAR) Insurance in Malaysia

What is CAR/EAR Insurance?

CAR and EAR policies protect construction and installation projects against damage to works in progress, materials, and equipment, plus legal liability to third parties.  CAR/EAR insurance is a comprehensive policy designed to protect all parties involved in the construction of a project.

Contractor's All Risks (CAR) covers building and civil engineering projects: commercial buildings, factories, warehouses, roads, bridges, and infrastructure. The policy is designed to cover sudden and unforeseen physical loss or damage to the contract works, materials, and equipment during the period of construction.

Erection All Risks (EAR) covers installation and commissioning of machinery, plant, and equipment: production lines, steel structures, boilers, turbines, and industrial systems. This policy is also designed to protect against sudden and unforeseen physical loss or damage to the contract works and associated equipment.

Most Malaysian construction contracts require CAR or EAR insurance before work begins. It's typically a condition in the Letter of Award or tender requirements. This policy provides an all risks insurance solution for the contract works and is essential for the construction of any project, ensuring coverage for physical loss or damage, and unforeseen physical loss, during the construction period.

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Who Needs CAR/EAR Insurance in Malaysia?

Developers & Project Owners

These are the parties typically involved in a project and are required to arrange contractors all risk insurance under most construction contracts and financing agreements. They are responsible for arranging insurance coverage for a project.

G7 & G5 CIDB Contractors

These are main contractors who are involved in a project, executing large building, civil, or infrastructure works.

EPC & Turnkey Contractors

These are firms handling design, procurement, construction, and commissioning under single contracts for a project.

M&E Contractors

These are mechanical and electrical installers working on plant, machinery, and building services within a project.

Specialist Subcontractors

These are piling, steel fabrication, curtain wall, fire protection, and other specialist trades involved in a project.

Foreign Contractors

These are international firms working on Malaysian projects, and are often required to arrange local insurance for a project.

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What CAR / EAR Covers

Material Damage (Contract Works):

Protection for works under construction, including:

• Building/structure under construction
• Civil works (foundation, piling, retaining structures)
• Mechanical and electrical installation
• Permanent and temporary works
• Materials on-site / off-site / in transit
• Testing & commissioning (EAR)
• Construction plant and equipment (optional extension)

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Third-Party Liability

Covers legal liability for:

• Third-party property damage
• Bodily injury to third parties
• Damage to neighbouring structures
• Vibration, removal, or weakening of support
• Contractor’s negligence exposures

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Common Extensions

• Debris removal and professional fees
• Maintenance period cover (typically 12 months post-completion)
• Surrounding property damage
• 50/50 clause (cross-liability between principal and contractor)
• Waiver of subrogation

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When Do You Need CAR / EAR Insurance?

Most Malaysian construction and installation contracts require “contractors all risk insurance” to be in place for the construction of a project, and this insurance must remain active up to the completion of the works.

Before Construction Starts

Most contracts require insurance to be in place before site mobilization or commencement.

After LOA or Tender Award

Insurance is typically arranged once the Letter of Award is issued and before contract signing.

Before Bank Drawdown

Financiers often require proof of insurance before releasing project funds.

For Government Projects

PWD forms and government contracts usually have specific CAR insurance requirements that apply to a project funded by the government.

For Principal-Arranged Cover

When the developer or project owner arranges insurance for all contractors working on site.

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Common CAR/EAR Claims in Malaysia

Fire During Hot Works

Welding or cutting activities ignite timber formwork or construction materials, causing damage to completed and incomplete works.

Covered: Material damage, debris removal, professional fees if extended.

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Flood or Storm Damage

Heavy rainfall floods excavation pits, basements, or ground floor works, damaging foundations and stored materials.

Covered: Material damage, possible debris removal and temporary works.

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Crane or Lifting Accidents

Equipment failure or human error causes crane collapse, damaging structural steel, scaffolding, or neighbouring property.

Covered: Material damage, third-party liability, equipment if extended.

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Theft of Materials

Building materials, copper cables, or equipment stolen from site during construction.

Covered: Material damage (subject to policy conditions and security requirements).

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Equipment Failure During Commissioning (EAR)

Electrical faults or mechanical breakdown during testing damage installed machinery or plant.

Covered: EAR material damage, testing and commissioning extension.

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How Foundation Supports Your CAR / EAR Programme

1. Technical Scoping

We review your project scope, LOA, BOQ and method of works to understand the risk profile, contract requirements and any special clauses requested by the principal or financiers.

2. Market Placement

We approach engineering underwriters in Malaysia and the region based on project size, class of work and risk characteristics, using clear technical submissions and COPE-style information where relevant.

3. Documentation & Compliance

We help you align policy terms with contract conditions, including:

• Cross-liability clauses
• Waiver of subrogation
• Surrounding property wording
• VRWS clauses
• Maintenance period wording

4. Project Changes & Ongoing Support

Construction projects change. We support:

• Variations and change of scope
• Extensions of time (EOT) and revised timelines
• Sum insured adjustments and endorsements
• Interface with other covers (e.g. CPM, WC, PI, bond)

5. Claims Assistance

In the event of a loss, we help with:

• Notifying insurers and loss adjusters
• Clarifying coverage and deductibles
• Coordinating site visits
• Supporting documentation and claim preparation

Our goal is to help Malaysian contractors and project owners navigate engineering claims in a structured, realistic way.

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Frequently Asked Questions: CAR / EAR Insurance in Malaysia

Is CAR / EAR insurance compulsory in Malaysia?

It depends on the contract. Many government and private construction contracts require contractors and/or principals to arrange Contractor’s All Risks (CAR) or Erection All Risks (EAR) insurance as a condition of the Letter of Award or contract. The requirement is usually detailed in the insurance section of the tender or standard form of contract.

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What is the difference between CAR and EAR?

• CAR (Contractor’s All Risks) is typically used for civil, building and structural works (e.g. buildings, roads, bridges, infrastructure)
• EAR (Erection All Risks) is usually used when the focus is on erecting, installing and testing machinery, plant and steel structures (e.g. production lines, boilers, turbines, industrial equipment)

Some Malaysian insurers combine both under a single CAR/EAR wording, especially for mixed projects

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Can I cover contractor’s plant and machinery under CAR / EAR?

Many Malaysian insurers allow contractor’s plant and machinery to be included as an extension under the CAR / EAR policy, or they can be insured separately under a Contractor’s Plant & Machinery (CPM) policy, depending on the size and spread of equipment.