Construction activities inevitably involve uncertainties. During construction, circumstances may arise that could result in significant financial losses, suspension of work, and damage to the surrounding area. Therefore, builder's risk insurance (Contractor's All Risk insurance – CAR insurance) is not merely a recommendation, but a mandatory component of the construction process – especially if the project is financed from public funds or under government guarantees.

 

In Uzbekistan, the regulatory framework in this area is established by Resolution No. 532 of the Cabinet of Ministers of the Republic of Uzbekistan dated December 20, 1999. This document introduced mandatory insurance of construction risks for the projects built using public funds and loans secured by a government guarantee. Since January 1, 2000, contractors of all forms of ownership have been required to insure against these risks when entering into contracts for such projects. Furthermore, financing under construction contracts is only possible with a valid insurance policy – this strict requirement underscores the importance of protecting public investments.

 

What is covered under the policy?

 

The builder's risk insurance policy covers not only the construction works but also all material resources used on the site, as well as potential third-party liability. The legislation specifies the items subject to mandatory insurance coverage. According to Resolution No. 532, insured items include:

 

• Buildings and structures under construction, equipment, machinery, and spare parts;
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• Construction materials and structural elements;
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• Other property located on the construction site and involved in the construction and installation process, if specified in the insurance contract;
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• The policyholder's liability for harm that may be caused to the life, health or property of third parties during construction and installation work.

 

Thus, the policy covers both tangible assets and potential claims from injured parties. This allows the contractor to focus on fulfilling the obligations without being distracted by the risks of sudden expenses associated with equipment damage or incidents involving third parties

 

Scope of covered risks

 

The builder's risk insurance covers a wide range of hazards, from natural disasters to errors in material handling. Each of these risks can not only delay the completion of a project but also lead to significant financial losses. The list of insured risks under Resolution No. 532 includes:

 

• Fire, lightning, explosion, aircraft impact, spontaneous combustion;
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• Theft and malicious acts of third parties;
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• Flood and inundation, pipe bursting;
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• Storm, hurricane;
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• Earthquake, mudflow, avalanches, soil subsidence, landslide, rockslide;
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• Short circuit, overvoltage, electric arcs;
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• Fall of machinery and equipment, building materials and structures;
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• Damage resulting from the unintentional use of defective materials or structures;
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• Civil liability to third parties during construction and installation work.

 

Additionally, the insurance policy may provide for compensation for debris removal costs following an insured event (within 2% of the sum insured), as well as costs incurred to prevent or mitigate damage. This comprehensive approach ensures that the contractor has sufficient financial resources to address the consequences of even a major incident and to carry out restoration works.

 

Liability limits and payment procedures

 

The insurer's liability is limited to the insured amount specified in the contract. By agreement of the parties, this may be no more than 80% of the total cost of the facility under construction (or the portion of the cost to be built in the planned year, taking into account previously completed work and the cost of materials). For civil liability to third parties, limits are set which apply during the entire insurance period.

 

The policy's validity period corresponds to the construction deadlines specified in the contract. If the project delivery deadline needs to be extended, the insurance can be renewed for an additional fee, the amount of which is determined by the parties. If work is temporarily suspended (for up to three months) for reasons beyond the policyholder's control, the contract can be suspended and subsequently reinstated/resumed without additional fees.

 

Important: insurance indemnity is paid within five banking days after the commission signs the report documenting the extent of the damage and the payment amount. A penalty of 0.15% of the compensation amount for each day of delay is provided for late payment, but no more than 10% of the amount due.

 

Non-covered items

 

As with any type of insurance, there are exclusions, under which payment is not made. These limitations are aimed at preventing abuse and clearly delineating the responsibilities of the parties. The legislator has determined that damages are not subject to compensation if they arise directly or indirectly from:

 

• Military actions, military activities and their consequences, acts of terrorism, strikes, public unrest;
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• Nuclear explosion, radioactive exposure, and contamination;
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• Intentional actions or gross negligence of the policyholder, beneficiary, or their representatives;
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• Defects or deficiencies known to the insured or beneficiary prior to the occurrence of the insured event;
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• Corrosion, rot, natural wear and tear, spontaneous combustion, or other natural properties of objects (in this case, damage to other insured objects caused by these phenomena is subject to compensation);
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• Internal breakdowns of construction equipment and vehicles not caused by external factors.

 

Furthermore, the insurer does not cover the costs of replacing, repairing, or correcting defective materials, components, or parts used in construction, nor the costs of correcting errors in workmanship. However, this exclusion applies only to the defective elements themselves and does not relieve the insurer from the obligation to compensate for damage caused to properly constructed structures as a result of such defects. Understanding these exclusions allows the insured to assess risks in advance and, if necessary, provide additional forms of protection.

 

Actions in the event of an insured event

 

To receive compensation, the insured must act promptly and strictly according to the regulations. The procedure is clearly outlined in regulatory documents and is aimed at objective assessment and documentation of damage. When an insured event occurs, it is necessary to:

 

• Take all possible measures to mitigate losses;
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• Notify the insurer of the incident within 7 calendar days (in writing or electronically);
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• Provide the access of the insurer’s representatives to the scene of the incident and documentation;
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• Provide all necessary documents (plans, invoices, specifications, etc.).

 

The insurer is required to inspect the property within three days of receiving the notification. A committee of representatives from both parties is formed to determine the extent of the damage, and in the event of a dispute, an expert committee is formed. Adherence to these deadlines and procedures helps avoid disputes and ensure the receipt of compensation within the legally established timeframe.

 

Transfer of the right of claim (subrogation)

 

After the insurance payment is made, the insurer acquires the right to claim compensation from the party responsible for causing the damage. This means the insurer can recover the paid amount from the at-fault party. The policyholder is obligated to provide the insurer with all documents and facilitate the exercise of this right.

 

If the damage is fully compensated by the at-fault party, the right to receive an insurance payment is lost. In the case of partial reimbursement, the insurance payment is calculated taking into account the amount already received.

 

The practical importance of CAR insurance

 

The mandatory contractor's all risk insurance addresses several important objectives that extend beyond the scope of a single contract. It serves as a tool for stabilizing the industry and protecting the interests of all participants in the investment process. The main aims of this mechanism can be summarized as follows:

 

• Ensuring the safety of public investments. Since the insurance is mandatory for projects financed from the budget or under state guarantees, it ensures that even if unforeseen events occur, construction will not stop due to a lack of funds for restoration;
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• Reducing the financial risks of contractors. Transferring potential losses to the insurer allows the contractor to avoid significant financial losses, especially in large-scale projects with a high concentration of material assets on the construction site;
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• Protection of third-party interests. Construction work is often carried out near existing buildings, roads, and in areas with heavy traffic. Liability insurance protects both victims and the contractor from potentially ruinous claims;
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• Compliance with legal requirements. Having an insurance policy is a mandatory requirement for financing construction contracts. Without it, the project will not be able to receive budget funds or government-guaranteed loans.

 

The integrated use of these tools helps increase the investment attractiveness of the construction sector and reduce the burden on the state budget in the event of accidents. Thus, the mandatory insurance becomes not an administrative barrier, but an effective risk management mechanism.