EAR vs CAR Insurance Malaysia: Complete Guide to Choosing the Right Project Coverage

Disclaimer: This article provides general guidance based on standard engineering insurance practices and information from Malaysian insurers as of January 2025. Policy terms vary between insurers. Always verify specific coverage requirements with your insurance broker or underwriter before making coverage decisions.

You're bidding on a government project. The tender documents require "appropriate project insurance." You've heard of CAR and EAR insurance, but which one do you actually need?

Getting this wrong can void your coverage entirely, leaving you exposed to losses that could bankrupt your company.

This guide covers:

• The fundamental difference between CAR and EAR insurance
• Which projects need which policy (with specific examples)
• What each policy covers and excludes
• Common mistakes contractors make when selecting coverage
• How to determine the right sum insured

CAR vs EAR: The Core Difference

The distinction is straightforward: Contractor's All Risks (CAR) insurance covers civil construction works, while Erection All Risks (EAR) insurance covers mechanical and electrical installation projects. Both are "all risks" policies, meaning they cover any sudden and unforeseen loss except what's specifically excluded.

Think of it this way: if your project primarily involves pouring concrete, laying foundations, and building structures, you need CAR. If your project primarily involves installing, assembling, and commissioning machinery or equipment, you need EAR.

When You Need CAR Insurance

CAR insurance is designed for traditional construction projects where the primary activity involves building physical structures. This includes all civil engineering works regardless of scale.

Projects That Require CAR Insurance

Malaysian government projects and most private developments require CAR insurance as a standard tender condition. CIDB-registered contractors bidding on projects typically need to show proof of adequate CAR coverage before contract award.

When You Need EAR Insurance

EAR insurance covers the installation, erection, testing, and commissioning of machinery, plant, and equipment. The critical distinction is that EAR specifically covers the testing and commissioning phases, which is where many mechanical and electrical failures occur.

Projects That Require EAR Insurance

The key question: does your project involve equipment that needs testing and commissioning before handover? If yes, you likely need EAR.

What CAR Insurance Covers

CAR policies operate on an "all risks" basis, covering any sudden and unforeseen physical loss or damage except what's specifically excluded. This approach means you're protected against most scenarios without having to list every possible peril.

Section I: Material Damage

Section II: Third Party Liability

This section protects against claims from third parties for bodily injury or property damage arising from your construction activities. A crane dropping materials onto a neighbouring building, site excavation damaging adjacent utilities, or a member of the public injured by site debris would all fall under this coverage.

Common CAR Extensions

What EAR Insurance Covers

EAR provides similar all risks protection but specifically tailored for installation projects. The key additions are coverage for testing, commissioning, and the higher-value equipment typically involved.

Key EAR Coverage Elements

The testing and commissioning coverage is critical. This is when equipment operates under load for the first time, and hidden defects or installation errors often reveal themselves. Standard CAR policies typically don't cover these phases adequately.

Projects That Need Both CAR and EAR

Many projects involve both civil construction and equipment installation. A new factory, for example, requires building construction (CAR) and production line installation (EAR). How you structure coverage depends on the project's composition.

Some insurers offer combined policies that provide seamless coverage for both aspects. This eliminates the risk of gaps between policies and simplifies claims handling.

Common Mistakes Contractors Make

After reviewing hundreds of project insurance arrangements, certain mistakes appear repeatedly.

Mistake 1: Relying on the Wrong Policy Type

Using CAR for machinery installation projects or EAR for pure civil works creates coverage gaps. The policy you choose must match the nature of your project.

Mistake 2: Underinsuring the Project

Contractors sometimes insure only the contract value without including employer-supplied materials, inflation allowance, or debris removal costs. When a major loss occurs, the insurer applies average and reduces the claim payment proportionally.

Mistake 3: Assuming the Main Contractor's Policy Covers Subcontractors

If you're a subcontractor, don't assume you're automatically covered under the main contractor's CAR policy. Verify your interest is noted on the policy and understand what happens if the main contractor's policy lapses or has insufficient cover.

Mistake 4: Forgetting the Maintenance Period

Standard policies cover the construction period only. Without a maintenance extension, you're exposed during the defects liability period when you're still responsible for rectifying issues.

Mistake 5: Ignoring Deductibles

Project insurance policies carry deductibles (excess) that you pay for each claim. For large projects, these can be substantial. Factor deductibles into your project risk assessment.

Insurance Requirements for Malaysian Government Projects

Government tenders in Malaysia typically specify insurance requirements in the tender documents. These requirements vary by project type and value but commonly include:

Failure to provide adequate insurance can result in tender disqualification or contract termination. Always verify specific requirements in your tender documents.

FAQ

What's the main difference between CAR and EAR insurance?

CAR covers civil construction works like buildings, roads, and bridges. EAR covers the installation, testing, and commissioning of mechanical and electrical equipment like power plants and factory machinery.

Can I use CAR insurance for a solar farm project?

No. Solar projects involve significant mechanical and electrical components that require testing and commissioning. EAR insurance is the appropriate coverage because it specifically covers the testing and commissioning phases where solar installation failures commonly occur.

Does CAR insurance cover my construction equipment?

Not automatically. Contractor's plant and equipment coverage is usually an optional extension that requires additional premium. Verify with your insurer whether your equipment is covered and for what value.

What happens if I underinsure my project?

If the sum insured is less than the actual value at risk, the insurer may apply average (proportional reduction) to claims. A project insured for RM10 million but valued at RM20 million might only receive 50% of any claim.

Is testing and commissioning covered under CAR insurance?

Standard CAR policies provide limited or no coverage for testing and commissioning of mechanical equipment. If your project involves significant testing phases, you likely need EAR insurance or a specific testing extension.

Who should be named as insured on the policy?

Typically, the policy names the employer (project owner), main contractor, and subcontractors as co-insureds. This protects all parties and allows the policy to respond regardless of who suffers the loss. Government projects usually require the government to be named as a co-insured.

How long does coverage last?

Coverage aligns with the project duration specified in your Letter of Award, from commencement to practical completion. You should also extend coverage for the maintenance/defects liability period, typically 12-24 months after completion.

Are defects in my work covered?

The cost of correcting defective work itself is excluded. If defective work causes damage to other parts of the project, that consequential damage may be covered. Insurance isn't a substitute for quality control.

Do subcontractors need their own insurance?

It depends on the contract terms and the main contractor's policy. Some CAR policies cover subcontractors; others don't. Subcontractors should verify they're covered under the main policy or arrange their own coverage to avoid gaps.

What's Delay in Start-Up insurance?

DSU covers loss of anticipated revenue when an insured event delays project completion. It's particularly important for income-generating projects like power plants or manufacturing facilities where delays directly impact revenue.

Foundation Conclusion

Choosing between CAR and EAR insurance isn't complicated once you understand the core principle: CAR is for building structures, EAR is for installing equipment. The consequences of choosing wrong are severe: uncovered losses, disputed claims, and potential project failure.

Engineering insurance is technical. Getting the right coverage requires understanding both your project's risk profile and the policy's actual scope. A specialist broker who understands how underwriters price construction and installation risks can help you structure coverage that actually protects your project.

Talk to our engineering insurance specialists about your project requirements