Construction All-Risk (CAR) Policies: Distinction Between Temporary and Permanent Works and Coverage

1. Introduction

One of the most important risk management tools in the construction industry "All-Risk (CAR) Insurance" policies. These policies sudden and unexpected damages . However, one of the most debated issues in practice is "temporary works" and "permanent works" and whether they fall within the scope of the policy.

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2. Legal Basis of Construction All-Risk (CAR) Policies

Although CAR policies are not directly regulated by law in Turkish law;

• Articles 1401 and subsequent articles of the Turkish Code of Obligations (TBK) (insurance contracts),
• Insurance Law (5684),
• This is implemented based on the General Terms and Conditions of Construction All-Risk Insurance published by TSRSB (Turkish Insurance Association) .
  

These policies are classified as " property insurance ." That is, their purpose is to compensate for material damages to the structure, materials, and equipment involved in the construction work .

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3. Purpose and Parties of CAR Policy

3.1. Purpose

Things that may happen during the construction process;

• fire, lightning, explosion,
• natural disaster (earthquake, flood, storm),
• Damage resulting from a workplace accident
• To insure against financial losses caused by risks such as damage to third parties
  

3.2. Parties

A CAR policy may have multiple stakeholders:

• Employer (project owner),
• Contractor,
• Subcontractor,
• Supplier,
• Project financier (bank or investor).

The policy is usually structured as a "joint policyholder" to cover all of these parties.

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4. Distinction Between Temporary and Permanent Works

4.1. Definition of Concepts

Every element used in construction projects permanent or temporary .

• Permanent structuresare elements that, once construction is complete, are part of the overall project and directly affect the building's function (e.g., foundation, columns, beams, walls, roof, plumbing).
• Temporary structures : These are buildings, equipment, or arrangements that are intended to assist in the completion of a construction project but are removed or rendered unusable once the work is finished (e.g., scaffolding, formwork, site buildings, crane tracks, temporary power lines).

4.2. Legal Significance

Whether temporary structures are covered under CAR policies directly affects liability for damages. This is because the insured's aim may be to protect not only the final structure but also the temporary structures used to access it.

However, according to general terms and conditions, temporary works often from coverage unless specifically stated otherwise .

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5. The Supreme Court's Approach to the Distinction Between Temporary and Permanent Works

5.1. Supreme Court of Appeals, 17th Civil Chamber, Case No. 2016/4053 E., Decision No. 2019/7254 K.

"The construction work insured under the insurance policy is permanent in nature, and temporary works (scaffolding, formwork, temporary installations, etc.) are excluded from coverage unless explicitly stated in the policy."

This decision highlighted the wording in CAR policies as crucial. In other words, if the policy does not explicitly state "construction site equipment, temporary structures," no insurance compensation will be paid.

5.2. Court of Cassation, 11th Civil Chamber, Case No. 2018/4576 E., Decision No. 2020/3932 K.

“The fact that a temporary facility is essential for the completion of construction does not mean it is covered by insurance. If no insurance amount is specified in the policy, such assets are excluded from coverage.”

Therefore, the Court of Cassation systematically confirms that temporary structures not explicitly listed in the policy are not covered by insurance

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6. Coverage Scope of CAR Policy

6.1. Basic Guarantees

A CAR policy covers the following damages:

• Physical damage that occurred during construction,
• Theft and vandalism,
• Fire, lightning, explosion,
• Natural disasters such as earthquakes, floods, and storms,
• Damages caused to third parties (third-party liability insurance).

6.2. Additional Guarantees

The following additional coverages can be added to the policy at the request of the policyholder:

• Construction site equipment insurance,
• Temporary structures and molds,
• Engineering errors,
• Shipping and installation guarantee,
• Loss of profit (business interruption) insurance.

Without these additional guarantees, the insurance company may not pay if elements such as temporary structures or formwork are damaged.

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7. Inclusion of Temporary Works in Insurance Coverage

For temporary works to be considered within the scope of the guarantee, the following conditions must be met simultaneously:

1. It must be clearly stated in the policy
2. Inclusion in the calculation of the insurance cost,
3. It must be reported to the insurance company.

For example, assets such as reinforced concrete formwork, crane platforms, and temporary electrical panels must be listed as "auxiliary construction elements" in the policy.

7.1. Problems Encountered in Practice

In practice, some contractors do not declare the value of temporary structures in order to keep insurance premiums low. However, when damage occurs, they claim compensation for these structures. The insurance company, however, refuses to pay on the grounds that it is an "undeclared item".

The Supreme Court, in such cases, rejects the insured's claim, emphasizing the binding nature of the policy statement

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8. Insurance Protection for Permanent Works

Permanent structures constitute the main subject of the policy. The coverage period generally includes the following stages:

1. Construction period,
2. Assembly period (if any),
3. Trial and delivery process,
4. Maintenance period (usually 12 months).

Any physical damage occurring during these periods will be compensated if it is of a "sudden and unexpected" nature.

8.1. Policy Term and Risk Transfer

The contractor's CAR policy expires upon delivery of the construction, as the risk now passes to the employer. However, the employer can still Maintenance Period Coverage insurance .

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9. Exclusions from Coverage

The following are excluded from coverage in CAR policies :

• Deliberate action,
• Normal wear and tear, rust,
• Design or material defect (unless otherwise covered by additional warranty),
• Workmanship defect,
• War, rebellion, terrorist events,
• Damages due to interruption caused by pandemic or administrative restrictions.

Therefore, only events classified as "material damage" are compensated. Loss of income or business interruption damageis not covered unless specifically added to the policy.

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10. Obligations of the Policyholder

The policyholder (usually the contractor) has the following obligations under the policy:

• Accurately stating the nature of the construction ,
• Notifying the insurer of changes in risk ,
• To report damages within a reasonable time .
• Fulfilling the duty of care to prevent damage (Turkish Code of Obligations, Article 1443)

Failure to comply with these obligations may result in a reduction or complete rejection of compensation

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11. Conclusion

Construction All-Risk (CAR) policies are the most fundamental type of insurance providing legal and financial protection in modern construction projects. However, the most critical point determining the scope of protection of these policies is the distinction between temporary and permanent works.

Supreme Court rulings and case law temporary structures not explicitly mentioned in the policy are excluded from coverage . Therefore, contractors clearly declare and include them in the insurance amount .

Otherwise, if damage occurs, it will not be possible to receive compensation on the grounds that it is an "outside the scope of the policy".

In conclusion, a CAR policy is not only a technical but also a legal safeguard . To make this safeguard effective, it is extremely important to carefully examine the policy, read the specific terms and conditions, and seek professional advice from an insurance lawyer when necessary