This document outlines the essential types of insurance typically required for construction projects within the Kingdom of Saudi Arabia (KSA). These policies are critical for managing project risks, providing financial protection against unforeseen liabilities, and ensuring compliance with local legal and contractual frameworks.
Below are the most common insurances that may be required in construction projects.
What is construction Insurances?
Insurance policies protect project stakeholders including the owner, contractor, and sub-contractors from financial losses due to unforeseen events like damage, injury, or third-party claims.
A.Professional Indemnity (PI) Insurance[1]
Description:
- PI insurance, also known as Errors and Omissions (E&O) insurance.
- Cover for liability arising due to any negligent act, error or omission, or default arising out of the conduct of the professional services or advice.
- The Professional services may include - but are not limited to - the performance by the insured of any, design or specification; inspection, feasibility study, technical information calculation, survey, project co-ordination, project management, or construction management.
- Cover is provided under PI policies for awards of damages, costs or settlements (including defence costs) for which the practice is legally liable resulting from a claim made against them during the policy period.
- The insurance duration cover the Project duration, and extended to number of years after project handover as per contract (up to 10 years for UAE and KSA projects).
- If the building cracks due to bad engineering calculations (not bad workmanship), PI will pay for costs.
B.Contractors' All Risk (CAR) Insurance[2]
Description:
- CAR insurance is a comprehensive form of insurance that covers all the risks of sudden and accidental physical loss or damage to the construction works, materials, and equipment, whether the construction is new or renovation work, due to risks such as fire, flood, storm, theft, and accident. This form of insurance also covers temporary structures, third-party claims for property damage or injury , and damage to plant and machinery, which may be owned or hired during the project.
- CAR insurance is usually covers multiple parties involved in the project, from the main contractor and employer to subcontractors and suppliers. The joint approach helps avoid potential disputes between parties when things go wrong, as everyone is covered under the same policy.
- Despite its "all risks" name, however, CAR insurance doesn't actually cover everything. Some common exclusions include:
- Normal wear and tear
- Design defects (these need professional indemnity insurance)
- Poor workmanship
- Deliberate acts or negligence
- Terrorism (though this can often be added as an extension)
- Pure financial losses without physical damage
Examples
- If the building burns down halfway through construction, the Contractor is liable to rebuild it. This insurance pays for that rebuilding.
C. Workmen’s Compensation & Employers Liability Insurance[3][4]
Description:
- This insurance provides coverage for injuries or illnesses that employees may suffer while performing their job duties. It includes medical expenses, compensation for lost wages, and legal liability for employers if found negligent.
- It covers workplace injuries, diseases, or fatalities, medical expenses, rehabilitation costs, and any legal liability for employers arising from workplace accidents.
- Exclusions typically include injuries sustained while employees are engaging in illegal activities or self-inflicted injuries. Specific exclusions will depend on the terms of the policy.
Examples
- In case any employee is injured during work because of an accident arising out of and in the course of his employment on the Project, all statutory benefits and employer’s liability payment shall be covered under the Contractor’s Workmen’s Compensation and Employers Liability Insurance.
D.Third Party Liability (TPL) Insurance[5][6]
Description
- Third-Party Liability (TPL) Insurance in construction providing indemnity to the insured against legal liability in respect of "third-party" losses, i.e., injury, death, or property damage sustained by parties other than the two parties to a construction contract (the Employer and the Contractor) and their immediate employees. While Workers’ Compensation Insurance covers internal labor costs, TPL Insurance provides protection against "external" risks arising from construction work, shielding the construction project against potential claims from neighbors, passersby, adjacent landowners, etc.
- Also covers the damage to third party properties.
- TPL insurance is usually covers multiple parties involved in the project, from the main contractor and employer to subcontractors and suppliers.
- Exclusions may include:
- Liability to Employees
- Liquidated Damages and Penalties
- Professional Advice
- Wilful Act
- Deductibles
- Political Risk Exclusion
Examples
- Crane falls on a passing car or a neighbor's wall collapses.
- Collapsed wall or ditch constructed or fabricated by another subcontractor
- Failure to warn of dangerous conditions by subcontractor or property owner
- Work-related motor vehicle accidents caused by third parties
- Faulty wiring by the electrical contractor, causing electrocution risk
- Another subcontractor neglects to cover an opening, drops a heavy object onto a worker, or strikes another worker with a crane or other piece of heavy equipmen
E.Automobile Liability Insurance[7]
Description:
- Automobile liability insurance in construction projects is a policy that protects the contractor (and sometimes the owner) if a vehicle used for the project causes injury to people or damage to other property while being driven for project-related work.
- It usually covers all vehicles used in the project owned, hired, or employee‑owned up to a stated limit, and it pays compensation to third parties if the contractor is found legally responsible for the accident.
Examples:
- If a contractor’s pickup truck is delivering tools to a building site, and the driver accidentally hits a parked car and injures a pedestrian on the street next to the site. The automobile liability insurance would respond by paying for the repair of the damaged car and the medical costs and other approved claims of the injured pedestrian, instead of these amounts being paid directly by the contractor from company funds.
F.Contractor's Equipments All Risk
Description:
- Covering physical loss of or damage to Goods including the Contractor's and subcontractors' permanent and temporary facilities, site huts, their contents, equipment, consumables, and tools including cranes and lifting equipment used in connection with the construction and completion of the Plant (other than motor vehicles, and marine vessels) and the like not forming a permanent part of the Plant owned or leased by the Contractor.
G.Inherent Defect Insurance (IDI) / Decennial Insurance[8]
Description
- In KSA, the Inherent Defects Insurance is a mandatory insurance policy that lasts for 10 years and was introduced to protect property owners against major "hidden" structural problems that may occur after the completion of a building. This is a "first-party" insurance policy that differs from the usual insurance policy because the insurance company pays for the repairs right away when the defect is discovered. The owner does not need to go through court proceedings to prove that the contractor or architect made a mistake.
- This policy provides coverage against "Inherent Defects," which are problems that may occur during the building process that were not visible when the building was completed but may pose a threat to the stability of the building at a later date. This policy becomes effective when the Occupancy Certificate is issued to the building owner and may cover the "bones" of the building, including the foundations, columns, load-bearing walls, and the roof. This policy pays for the costs incurred to repair the damage or to strengthen the building to prevent a collapse or to build a new one if the building becomes dangerous to use.
Examples
- Five years after a building is completed, large cracks appear in the main support columns because the soil wasn't properly tested or the foundation was built too thin. The insurance pays to stabilize the ground and fix the structure.
H.Erection All Risk (EAR) Insurance[9]
Description:
- Erection all risks (EAR) insurance covers against all risks of physical loss and physical damage throughout the period of the erection, construction and installation of machinery, plant and steel structures, including physical damage to the project, equipment and machinery, and liability for third-party bodily injury or property damage arising out of these operations.
Examples:
- if a massive HVAC chiller unit is being hoisted to the rooftop plant room and a cable snaps, crushing the unit, or if a high-speed elevator system short-circuits and catches fire during its first power-on testing phase, the EAR policy covers the cost of the sophisticated machinery and the specialized labor required to re-install it.
I.Marine Cargo Insurance[10][11][12]
Description:
- Marine Cargo Insurance in construction projects refers to an insurance policy that covers building materials, equipment, and plant during transit from the manufacturer’s site to the construction site by sea, air, or land against risks of loss, theft, and physical damage during transit.
- Insurance coverage that protects goods transported via ocean or inland waterways against loss or damage. Marine cargo insurance typically covers risks such as sinking, fire theft and weather-related incidents. Shippers often secure marine insurance to mitigate financial risks in global trade
Examples:
- If a contractor procures a huge prefabricated steel bridge girder from Europe to a construction site in Saudi Arabia. During unloading operations in the port, the girder is damaged due to rough handling. If a marine cargo insurance policy is arranged to cover the entire construction project, then it will cover the cost of repairing or replacing the damaged girder, and in some policies, it may also cover financial losses incurred due to delays in completing the project because of this damage
Description:
- Aviation Liability Insurance is a policy that the Contractor (or the aircraft owner) must carry whenever the performance of the Contract involves the use of any aircraft (including helicopters or drones) owned, hired, chartered, or leased by the Contractor.
- The insurance shall cover passenger legal liability (bodily injury, sickness, or death of passengers), injury to other third parties, and loss of or damage to third‑party property arising out of the operation of such aircraft.
References
- https://mutakamela.sa/liability-insurance/ ↩
- https://www.procore.com/en-gb/library/contractors-all-risks-insurance ↩
- https://www.alrajhitakaful.com/en/business/workmen-compensation-insurance ↩
- https://www.bimakavach.com/blog/workmen-compensation-insurance-inclusions-and-benefits/ ↩
- https://www.haroldgerrlaw.com/blog/third-party-liability-construction-accidents/ ↩
- https://www.greenbergrubylaw.com/third-party-liability-construction-accidents ↩
- https://www.lawinsider.com/clause/automobile-liability-insurance ↩
- https://www.irmi.com/term/insurance-definitions/erection-all-risks-insurance ↩
- https://www.medgulf.com.sa/home/marine-insurance ↩
- https://www.ajg.com/au/news-and-insights/marine-and-cargo-insurance-understand-the-essential-protections/ ↩
- https://www.gocubic.io/glossary/marine-cargo-insurance ↩
- https://legal-resources.uslegalforms.com/a/aviation-liability-insurance ↩
- https://gofeas.co.uk/aviation-liability-insurance-why-essential/ ↩
- https://legal-resources.uslegalforms.com/a/aviation-liability-insurance ↩