{"id":311673,"date":"2026-08-18T11:38:08","date_gmt":"2026-08-18T05:53:08","guid":{"rendered":"https:\/\/insurancekhabar.com\/?p=311673"},"modified":"2026-08-18T11:38:08","modified_gmt":"2026-08-18T05:53:08","slug":"understanding-contractors-all-risk-car-and-professional-indemnity-pi-insurance","status":"publish","type":"post","link":"https:\/\/english.insurancekhabar.com\/understanding-contractors-all-risk-car-and-professional-indemnity-pi-insurance\/","title":{"rendered":"Understanding: Contractors All Risk (CAR) and Professional Indemnity (PI) Insurance"},"content":{"rendered":"<ul>\n<li><span style=\"color: #0000ff;\"><strong>Birodh Bhatta<\/strong><\/span><\/li>\n<\/ul>\n<p>Contractors All Risk (CAR) and <strong>Professional Indemnity (PI)<\/strong> insurance cover different risks in a construction project. While CAR covers physical loss or damage to the property and third-party liabilities on-site, PI covers financial losses caused by design errors, bad advice, or professional negligence. Which means- PI ensures protection against against claims of poor design, calculation errors, and professional mistakes which could lead to economic loss without necessarily causing immediate physical destruction in site.<\/p>\n<p><span style=\"color: #0000ff;\"><strong>How do they Distinct from each other?<\/strong><\/span><\/p>\n<p>While CAR is a comprehensively designed Insurance Policy that covers construction-related risks. It provides financial security against\/covers property damage, third-party injury\/damages during construction projects. This insurance is necessary for any entities involved in construction, a contractor, subcontractor, or even a project owner. Its prominent areas of coverage are: <strong>Damage to Property, Injury to Workers, Third-Party Injuries or Damage, Loss of Equipment<\/strong><\/p>\n<p><strong>\u00a0<\/strong><span style=\"color: #0000ff;\"><strong>Who Needs Contractors All Risk Insurance?<\/strong><\/span><\/p>\n<p>Construction companies, contractors, subcontractors, and project owners involved in construction or renovation projects should consider purchasing this type of insurance. It is particularly important for large projects where the risk of property damage, injury, or equipment loss is higher.<\/p>\n<p><span style=\"color: #0000ff;\"><strong>Why Professional Indemnity Insurance?<\/strong><\/span><\/p>\n<p>PI policy is basically designed to financially protect businesses against legal claims arising from professional advice or services. In construction firms PI policyprovides covers against negligence, errors, omissions, or inadequate advice that may lead to a financial loss for a client or third party. It\u2019s particularly important for professionals who provide consultancy, design, or engineering services.This policy is best designed for anyone offering professional advice or services in the construction industry, such as architects, engineers, project managers, and consultants being responsible for the planning, design, or management of construction projects.<\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"color: #0000ff;\"><strong>Key Coverage Areas<\/strong><\/span><\/p>\n<ol>\n<li><strong>Negligence or Errors in Professional Advice:<\/strong>Covers legal costs and compensation if your professional services or advice are found to be negligent, resulting in client dissatisfaction or loss<\/li>\n<li><strong>Omissions or Mistakes:<\/strong>Protects against errors or omissions made in the delivery of your services such as incorrect design specifications or calculations<\/li>\n<li><strong>Subcontractor Faults:<\/strong>If a subcontractor makes a mistake that you are held responsible for, Professional Indemnity Insurance can cover the resulting costs<\/li>\n<li><strong>Breach of Duty or Contractual Terms:<\/strong>Covers lawsuits arising from failing to meet contractual obligations or professional standards<\/li>\n<\/ol>\n<p><span style=\"color: #0000ff;\"><strong>Perils and Common Claims<\/strong><\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>CAR<\/strong><\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>Property Damage:<\/strong>\u00a0<strong>Third-Party Injury, Worker Injury, Damage to Equipment<\/strong>\u00a0<\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>PI<\/strong><\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>Design Negligence, Subcontractor Mistakes<\/strong>, <strong>Incorrect Advice, Failure to Meet Standards<\/strong><\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>Do You Need Both Contractors All Risk Insurance and Professional Indemnity Insurance?<\/strong><\/span><\/p>\n<p>The answer to this question is certainly yes, in today\u2019s world most construction businesses need both policies because CAR onlyprovides covers for physical risks like property damage, injuries, and equipment loss; while PI Insurance covers risks related to professional advice or services. It is important that ifsomeone is a contractor or builder responsible to handle the physical aspects of a project and also have to provide design, planning, or management services, you will need bothCAR and PI insurance.It\u2019s like CAR covering the tangible aspects and the PI covering the immaterial one.<\/p>\n<p><strong><span style=\"color: #0000ff;\">Legality behind PI Insurance:<\/span><\/strong><\/p>\n<p><strong>Clause 19<\/strong> of FIDIC (International Federation of Consulting Engineers) contracts is related governing <strong>insurance<\/strong> obligations which requires both the Employer and the Contractor to protect the project by maintaining specific policies including insurance for the Works, plant, materials, contractor&#8217;s equipment, injury to persons, and third-party property damage<strong>, <\/strong><strong>Professional Indemnity <\/strong>requiring design responsibilities.<\/p>\n<h3><span style=\"color: #0000ff;\">Professional indemnity insurance on construction projects:<\/span><\/h3>\n<p>When contractor holds no design role he might regard PI cover as unnecessary; however, if he is responsible on design parts PI policy engages and it becomes wise to buy it.<\/p>\n<h3><span style=\"color: #0000ff;\">Prominent coverage extensions<\/span><\/h3>\n<p>With PI Insurance Insurers often provide optional or built-in extensions to tailor the policy to the realities of D&amp;C projects (Design and Construct). Following are the major four extensions:<\/p>\n<h3><span style=\"color: #0000ff;\">Principal\u2019s indemnity<\/span><\/h3>\n<p>This extension provides the policyholder\u2019s client (the principal) to be indemnified under the policy where they might be dragged into a legal claim due to the actions or omissions of the policyholder. It is particularly useful in large-scale developments\/projects where the principal may be sued as a co-defendant in a design-related dispute.<\/p>\n<h3><span style=\"color: #0000ff;\">Commensurate liability<\/span><\/h3>\n<p>In some contracts involving private or large government projects the contractor may be exposed to 100% of the liability for damage, even if another party (such as a consultant) was mostly involved in the fault.<\/p>\n<h3><span style=\"color: #0000ff;\">Novated\/replaced contracts<\/span><\/h3>\n<p>This contract situation occurs when a client appoints a designer directly (e.g., architect or engineer), and on later period transfers that contract to the design and construct contractor mostly in design and construct procurement. This coverage ensures the contractor is covered for design services performed prior to novation, even though the contractor was not responsible for them at the inception.<\/p>\n<h3><span style=\"color: #0000ff;\">Fitness for purpose<\/span><\/h3>\n<p>Many Design and construct contracts include an express or implied obligation that the design will result in a building or system that is \u201cfit for its intended purpose.\u201d In absence of this specific extension, such obligations may not be covered under standard PI policy wording. Here this extension provides cover for claims alleging that the design failed to deliver the required performance or outcome, even in the absence of negligence.<\/p>\n<p><span style=\"color: #0000ff;\"><strong><em>\u00a0(Bhatta is Deputy Director (Legal) of Nepal Insurance Authority. This article is Author\u2019s personal view.)<\/em><\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Birodh Bhatta Contractors All Risk (CAR) and Professional Indemnity (PI) insurance cover different risks in a construction project. While CAR covers physical loss or damage to the property and third-party liabilities on-site, PI covers financial losses caused by design errors, bad advice, or professional negligence. Which means- PI ensures protection against against claims of poor [&hellip;]<\/p>\n","protected":false},"author":16,"featured_media":80005,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45031,45159,45156],"tags":[78614,78616,78618,78612,78608,71860,56076,78610,78620,70672],"class_list":["post-311673","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banner-news-en","category-news-en","category-blog-en","tag-articleoninsurance-en","tag-birodhbhatta-en","tag-car-en","tag-contractorsallrisk","tag-insurancesecotor","tag-nepalinsuranceauthority-en","tag-nia-en","tag-pi","tag-professionalindemnity-en","tag-article-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/311673","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=311673"}],"version-history":[{"count":2,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/311673\/revisions"}],"predecessor-version":[{"id":311675,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/311673\/revisions\/311675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/80005"}],"wp:attachment":[{"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=311673"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=311673"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=311673"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}