EAR Insurance Malaysia: Erection All Risks for Machinery Installation & Commissioning Projects

Your machinery has arrived on site. The installation crew is mobilising. Testing starts in 8 weeks. Between now and successful handover, your equipment faces its highest risk of damage. Erection All Risks (EAR) insurance exists specifically for this period, covering physical loss or damage to machinery and equipment during installation, testing, and commissioning.

This guide covers everything EPC contractors, commissioning engineers, and plant owners need to know about EAR insurance in Malaysia: when you need EAR instead of CAR, what each section covers, how testing and commissioning coverage works, and how to structure your EAR programme for full project lifecycle protection.

This guide covers:

• What EAR insurance covers and when you need it
• EAR vs CAR: which one for your project
• Coverage through the full project lifecycle (storage, erection, testing, commissioning, maintenance)
• Section I, II, and III coverage explained
• Testing and commissioning period: the highest-risk phase
• Standard extensions and endorsements
• Premium factors and project-specific considerations
• Malaysian project requirements and claims scenarios

Disclaimer: This article provides general guidance on insurance coverage available in the Malaysian market as of February 2026. Policy terms, conditions, and availability vary by insurer. Always review your specific policy wording or consult a qualified insurance professional before making coverage decisions.

What Is EAR Insurance?

Erection All Risks (EAR) insurance is an engineering insurance policy that covers physical loss or damage to machinery and equipment during installation, testing, and commissioning at a project site. It is the mechanical/electrical counterpart to Contractor's All Risks (CAR) insurance, which covers civil and building construction works.

EAR covers the contract works (the machinery being installed) on an "all risks" basis, meaning it covers sudden and unforeseen physical loss or damage from any cause not specifically excluded. The coverage period runs from when equipment arrives at site through to handover after successful commissioning, and typically extends into the maintenance/defects liability period.

EAR Element	What It Means
Policy type	Engineering insurance (project-specific, not annual)
Basis	All risks (covers everything not specifically excluded)
Coverage period	From delivery to site through commissioning and handover + maintenance period
Who buys it	EPC contractor, installation contractor, or plant owner (depending on contract)
Named insured	Can cover principal (owner), main contractor, and subcontractors jointly
Sum insured	Full contract value of equipment and installation works

When You Need EAR vs CAR

The most common question in project insurance: should you buy EAR or CAR? The answer depends on the nature of the work.

Factor	EAR Insurance	CAR Insurance
Primary works	Machinery installation, plant erection, equipment commissioning	Civil and building construction (structures, earthworks, roads)
Key risk	Equipment damage during handling, erection, and testing	Structural damage, collapse, natural perils during construction
Testing coverage	Specifically designed for testing and commissioning phases	Limited testing coverage (mainly structural load tests)
Typical projects	Power plant installation, factory machinery, data centre equipment	Buildings, bridges, highways, MRT stations, dams
Value concentration	High value in few items (single turbine worth millions)	Value spread across many elements (concrete, steel, labour)
Maintenance period	Covers defects liability + performance guarantee period	Covers defects liability period
Loss-of-profits extension	DSU (Delay in Start-Up)	DSU (Delay in Start-Up)

Combined CAR + EAR Projects

Many industrial projects involve both civil construction and mechanical installation. Building a new factory means CAR coverage for the building structure and EAR coverage for the production machinery. The two policies run concurrently, and the handover from CAR to EAR typically occurs when the building shell is complete enough to begin equipment installation.

For turnkey EPC projects, insurers may offer a combined CAR/EAR policy that covers both civil and mechanical works under one programme. This simplifies administration and avoids potential gaps between separate policies. For more on the EAR vs CAR decision, see our comparison guide.

EAR Policy Structure: Section I, II, and III

EAR insurance is structured in three sections, each covering a different aspect of the project risk.

Section I: Material Damage (Contract Works)

Coverage Element	What's Covered	Sum Insured Basis
Items being erected	The machinery and equipment being installed, including components, materials, and spare parts at site	Full contract value (CIF + installation cost)
Construction equipment	Cranes, hoists, temporary steelwork, scaffolding, tools used for installation	Value of construction equipment at site
Civil works (ancillary)	Foundations, structural supports, cable trays, pipe racks done as part of the erection scope	Value of ancillary civil works

Section I covers the equipment from arrival at site through installation, testing, commissioning, and handover. If the machinery is damaged during lifting, alignment, welding, or first-run testing, Section I responds.

Section II: Third-Party Liability

Section II covers legal liability to third parties for bodily injury or property damage arising from the erection works. If a crane drops a component and it lands on a neighbour's vehicle, or if a testing accident injures a visitor, Section II responds. The limit is set as a separate amount from Section I.

Section III: Existing Property

Section III covers damage to the principal's existing property caused by the erection works. This is particularly important for brownfield projects where new machinery is being installed in an operating facility. If the installation crew accidentally damages existing production equipment while rigging the new machinery into place, Section III covers the existing equipment repair.

Section	Covers	When It's Critical
Section I	Contract works (equipment being installed)	Always (core coverage)
Section II	Third-party bodily injury and property damage	All projects (contractually required in most cases)
Section III	Principal's existing property	Brownfield projects (installation within operating facilities)

Coverage Through the Project Lifecycle

EAR coverage follows the equipment through every stage of the installation project. Understanding which phases are covered and what risks are highest in each phase is essential for structuring your programme.

Project Phase	Coverage	Key Risks	Risk Level
Storage at site	Equipment stored on site before installation begins	Weather damage, theft, handling damage during unloading	Medium
Erection / Installation	Physical installation of equipment onto foundations	Dropping during lifting, misalignment, welding damage, rigging failure	High
Cold testing	Mechanical testing without process media (rotation, alignment checks)	Vibration damage, alignment issues, bearing failure, incorrect assembly	High
Hot testing	Testing with process media (chemicals, steam, electrical load)	Overpressure, overheating, electrical overload, process upset	Very High
Commissioning	Full operational testing to prove performance specifications	Equipment running at full capacity for first time; all failure modes possible	Highest
Handover / Taking over	Transfer from contractor to principal	Risk transfer point; EAR erection period coverage ends	Transition
Maintenance period	Defects liability and performance guarantee period	Damage caused by contractor's defects rectification work	Low to Medium

The Commissioning Period: Why It's the Highest-Risk Phase

Testing and commissioning is when the equipment runs for the first time under real operating conditions. This is the phase where latent defects, assembly errors, design issues, and integration problems reveal themselves. The equipment hasn't been proven yet, and every system is being stressed simultaneously for the first time.

Standard EAR policies include testing and commissioning coverage, but the duration may be limited (e.g., 4 weeks of hot testing). If your commissioning programme requires longer, you need to negotiate extended testing periods at inception. Adding testing duration after the policy starts is more expensive and may face underwriter resistance.

For complex projects like data centre construction or power plant installation, commissioning can take 3-6 months. Your EAR policy must reflect this timeline.

What EAR Insurance Covers

Covered	Examples
Fire, lightning, explosion	Welding spark ignites insulation; lightning strike damages control panel
Flood, storm, tempest, inundation	Monsoon flooding damages stored equipment; storm topples partially erected structure
Impact, collision	Crane collision with equipment; vehicle impact on stored machinery
Theft	Copper cable theft; component theft from site storage
Dropping during lifting	Equipment slips from sling during crane lift; rigging failure
Testing and commissioning damage	Overspeed trip failure during first run; electrical overload during testing
Human error and negligence	Incorrect assembly; wrong bolt torque; misalignment causing vibration damage
Short circuit, electrical surge	Wiring error during installation; power surge during energisation
Defective material or workmanship	Hidden manufacturing defect revealed during testing; poor weld fails under pressure
Subsidence, landslip	Ground movement damages foundations supporting heavy equipment

What EAR Insurance Does NOT Cover

Exclusion	Explanation	Can It Be Added Back?
Faulty design	Loss or damage caused by a defective design. Standard exclusion in most EAR wordings.	Partially: DE3 or LEG 2/96 endorsement covers consequential damage from faulty design (but not the cost to rectify the design itself)
Wear and tear, gradual deterioration	Not sudden and unforeseen; normal ageing	No
Penalties for delay	Contractual penalties (liquidated damages) for late completion	No (but DSU extension covers actual revenue loss from delay)
Consequential loss	Loss of profit, loss of contract, business interruption	Yes: DSU (Delay in Start-Up) extension
War, nuclear, terrorism	Standard market exclusion	Limited terrorism cover may be available
Wilful act or gross negligence	Intentional damage; reckless disregard	No
Inventory, spare parts shortages	Financial or supply chain losses (not physical damage)	No
Pre-existing defects known to insured	Defects the insured knew about before insurance inception	No

The Faulty Design Exclusion: DE3 and LEG Endorsements

The faulty design exclusion is the most discussed exclusion in EAR insurance. Standard policy wording excludes loss or damage caused by faulty design. But in practice, a design flaw that causes one component to fail often damages other (correctly designed) components around it.

The DE3 endorsement and the LEG 2/96 (London Engineering Group) endorsement address this by covering the consequential damage to other parts of the works caused by a faulty design, while still excluding the cost of rectifying the defective design itself. For engineering projects, having DE3 or LEG 2/96 is standard practice. Without it, a design-related incident could void coverage for all resulting damage.

Standard EAR Extensions

Extension	What It Covers	When You Need It
Extended maintenance period	Covers damage during defects liability period (12-24 months after handover)	All projects with defects liability clauses
Extended testing period	Additional testing/commissioning weeks beyond standard allowance	Complex commissioning (power plants, data centres)
Debris removal	Cost of removing damaged equipment and debris after a loss	All projects (standard inclusion in most programmes)
Express freight / Air freight	Cost of expedited shipping for replacement parts	Time-critical projects where delay costs are high
Overtime labour	Additional costs of overtime work to expedite repairs	Projects with tight completion deadlines
Offsite storage	Equipment stored at offsite locations before delivery to project site	When equipment arrives early and is stored at port or warehouse
Inland transit	Coverage during transport from port/warehouse to project site	When marine transit insurance ends at port and equipment must travel overland
DSU (Delay in Start-Up)	Lost revenue when physical damage delays project completion and handover	Revenue-generating projects (power plants, factories, data centres)
50/50 clause	Splits risk during maintenance period: insurer covers 50% if cause unknown	Standard for maintenance period coverage

Types of Projects Requiring EAR Insurance

Project Type	Typical Equipment	Key EAR Considerations
Power plant installation	Gas/steam turbines, generators, boilers, transformers, switchgear	Very high single-item values; extended commissioning; DSU essential
Factory machinery installation	Production lines, CNC machines, packaging lines, conveyor systems	Integration testing across multiple machines; Section III for brownfield sites
Data centre equipment	Generators, UPS systems, CRAC/CRAH units, switchgear, BMS	Sensitive electronics; extended testing for redundancy validation
Process plant erection	Reactors, columns, heat exchangers, compressors, piping systems	Pressure testing; chemical commissioning; CIMAH compliance for chemical plants
Solar farm installation	Solar panels, inverters, transformers, grid connection equipment	High volume of individual panels; weather exposure; grid connection testing
Water/wastewater plant	Pumps, treatment equipment, filtration systems, dosing systems	Often combined CAR/EAR for civil + mechanical works
Oil & gas facility upgrade	Compressors, separators, metering equipment, control systems	Brownfield installation; Section III critical; hot work near live plant

DSU: Delay in Start-Up Extension

DSU (Delay in Start-Up) is the loss-of-profits extension for EAR (and CAR) insurance. It covers the financial loss when physical damage covered under Section I delays the project completion and start of commercial operations.

DSU Element	Description
Trigger	Valid Section I material damage claim that delays project completion
Covers	Loss of anticipated gross profit, standing charges, debt service during delay
Indemnity period	Maximum period of coverage (e.g., 6-24 months from planned handover date)
Time excess	Waiting period before DSU coverage starts (e.g., 30-90 days)
Sum insured	Anticipated gross profit for the indemnity period

DSU is particularly important for power plants (where each day of delay means lost power sale revenue), factories (where production start is linked to customer contracts), and data centres (where pre-committed tenants are waiting for handover).

EAR Premium Factors

Premium Factor	Impact	Why It Matters
Contract value	Primary determinant of premium	Higher contract value = higher sum insured = higher premium
Type of equipment	Complex, sensitive equipment rated higher	Gas turbines are more sensitive than structural steel; electronics more than pumps
Erection period	Longer periods = more exposure	More time on site means more exposure to damage
Testing/commissioning duration	Extended testing = higher premium	Testing is the highest-risk phase; longer testing = more exposure
Contractor experience	Experienced contractors may get better rates	Track record of similar projects reduces perceived risk
Location / natural catastrophe exposure	Flood-prone or exposed sites rated higher	Malaysian east coast and low-lying areas have higher flood risk
Deductible level	Higher deductibles reduce premium	Absorbing small losses reduces insurer's exposure and your premium
Extensions selected	Each extension adds to premium	DSU, extended testing, offsite storage each carry additional premium
Greenfield vs brownfield	Brownfield projects rated higher	Working near existing operating equipment increases risk of damage

EAR + Supporting Insurance: Complete Project Protection

EAR covers the physical works. But a complete project insurance programme requires additional policies to cover all risk exposures.

Policy	What It Covers	Why It's Needed Alongside EAR
EAR (Section I + II)	Contract works material damage + third-party liability	Core project insurance
Workmen Compensation	Employee injuries and fatalities	EAR Section II covers third parties, not your own workers
SPPI	Professional negligence in design and supervision	EAR excludes faulty design costs; SPPI covers design liability
CGL	General liability beyond project site	Broader liability coverage than EAR Section II alone
Marine Cargo	Equipment in transit (sea/air freight to Malaysia)	EAR typically starts at project site; marine covers the journey to Malaysia

EAR Claims Scenarios for Malaysian Projects

Scenario 1: Turbine Damage During Installation

Detail	Value
Project	Gas-fired power plant, Johor
Event	Gas turbine rotor drops 30cm during crane positioning due to sling failure
Section I claim	Rotor blade damage, bearing housing deformation; requires factory repair overseas
DSU impact	6-month delay to commercial operation date; lost power sale revenue
Key lesson	Single-item values can be extremely high; DSU loss often exceeds material damage

Scenario 2: Monsoon Flooding at Project Site

Detail	Value
Project	Semiconductor cleanroom equipment installation, Penang
Event	Unexpected monsoon flooding inundates site storage area; partially installed equipment submerged
Section I claim	Precision equipment contaminated; requires complete replacement of several units
Section III claim	Flood water damages existing cleanroom infrastructure through construction opening
Key lesson	Malaysia's monsoon season is a major EAR risk factor; Section III protects existing property

Scenario 3: Commissioning Failure

Detail	Value
Project	Chemical process plant expansion, Pahang
Event	During hot commissioning, reactor vessel overpressure incident damages vessel internals and connected piping
Section I claim	Reactor internals replacement; piping system repair; decontamination
Section II claim	Chemical release affects neighbouring worker accommodation
Key lesson	Hot commissioning is the highest-risk phase; ensure testing period coverage is adequate

Common Mistakes in EAR Insurance

Mistake	Consequence	How to Avoid
Using CAR when EAR is needed	CAR doesn't provide adequate testing/commissioning coverage for machinery	If primary works are machinery installation, use EAR (or combined CAR/EAR)
Insufficient testing period	Coverage expires before commissioning is complete; damage during extended testing is uninsured	Agree testing duration at inception based on realistic commissioning programme
No DE3/LEG endorsement	Consequential damage from faulty design excluded entirely	Include DE3 or LEG 2/96 at inception; it's standard for engineering projects
Skipping DSU extension	Delay costs not covered; project owner absorbs lost revenue from late start	Calculate anticipated revenue and include DSU for revenue-critical projects
Underinsuring contract value	Sum insured less than actual contract value triggers underinsurance penalty	Include full CIF value + installation costs + any owner-supplied materials
No Section III for brownfield projects	Damage to existing plant during installation not covered	Always include Section III when installing in or near an operating facility
Gap between marine transit and EAR	Equipment arrives at port but EAR hasn't started or marine has ended	Align marine transit termination with EAR inception; include offsite storage and inland transit extensions

Malaysian Contractual Requirements for EAR

In Malaysia, EAR insurance is commonly required by contract for installation projects. Government projects under JKR and CIDB frameworks specify minimum insurance requirements. Private sector contracts typically follow FIDIC or IEM contract forms that require the contractor to maintain erection all risks insurance.

Key contractual considerations:

• The contract may specify minimum Section II (TPL) limits
• The principal (project owner) should be named as co-insured on the policy
• The maintenance period coverage must match the defects liability period in the contract
• Any subcontractor involvement should be noted to ensure they're covered under the policy

FAQ

What is the difference between EAR and CAR insurance?

EAR covers machinery and equipment installation, testing, and commissioning. CAR covers civil and building construction works. If your project is primarily installing machinery (power plant, factory equipment, data centre systems), you need EAR. If it's primarily building a structure, you need CAR. Many projects need both.

Does EAR insurance cover testing and commissioning?

Yes, testing and commissioning coverage is a core feature of EAR insurance. Standard policies include a defined testing period (e.g., 4 weeks of hot testing). If your commissioning programme is longer, you should negotiate extended testing period coverage at policy inception. This is the highest-risk phase of any installation project.

Who should be named on the EAR policy?

The policy should name all parties with an insurable interest: the principal (project owner), main contractor, and key subcontractors. This is typically structured as a joint-names policy. Having all parties named avoids subrogation issues where the insurer recovers from one named party after paying a claim to another.

What is DSU and do I need it?

DSU (Delay in Start-Up) covers lost revenue when physical damage delays project completion. If the project will generate revenue (power plant, factory, data centre), DSU is essential. Without it, you bear the full cost of delayed commercial operations even though the physical damage itself is covered.

Does EAR cover equipment in transit to the site?

Standard EAR coverage begins when equipment arrives at the project site. Equipment in transit from overseas is covered under marine cargo insurance. The gap between marine and EAR can be bridged with offsite storage and inland transit extensions to the EAR policy.

What happens after the equipment is handed over?

After handover, the EAR policy enters the maintenance period phase, covering damage caused by the contractor's defects rectification work. Once the maintenance period expires, the equipment transitions to operational insurance: Machinery Breakdown, BPV, EEI, or IAR depending on the equipment type.

What is the DE3 or LEG 2/96 endorsement?

These endorsements modify the faulty design exclusion. Without them, if a design flaw causes damage to other parts of the works, the entire claim may be excluded. With DE3/LEG 2/96, the consequential damage to correctly designed components is covered; only the cost of rectifying the defective design itself remains excluded. This is standard for engineering EAR policies.

Can EAR cover both new installation and modifications to existing equipment?

Yes. EAR can cover both greenfield (new site) and brownfield (existing facility) projects. For brownfield projects, Section III is important because it covers damage to the owner's existing property caused by the installation works. The sum insured under Section III should reflect the value of existing property at risk.

How long should the EAR maintenance period be?

The maintenance period should match the defects liability period in your construction contract. This is typically 12 to 24 months after handover. During this period, coverage is limited to damage arising from the contractor's defects rectification work, not all risks. The 50/50 clause may apply for incidents where the cause is unclear.

Is EAR insurance required for government projects in Malaysia?

Government projects typically require the contractor to maintain erection all risks insurance as part of the contract conditions. The specific requirements vary by procuring agency (JKR, PETRONAS, TNB), but EAR is standard for any project involving significant machinery installation. See our guide on government project insurance requirements.

Foundation Conclusion

EAR insurance protects the most vulnerable period in your equipment's life: from the moment it arrives on site to the moment it's proven in commercial operation. During this period, the equipment is being handled, assembled, tested, and commissioned for the first time. Every phase carries risk, and the testing/commissioning period is when most significant losses occur.

A well-structured EAR programme covers the full project lifecycle, includes appropriate extensions (DSU, DE3, extended testing, Section III for brownfield sites), and names all relevant parties. Combined with Workmen Compensation, SPPI, and CGL, your installation project has comprehensive risk transfer from mobilisation through to handover.

Talk to our risk specialists about structuring your EAR programme