CAR Insurance and Other Policies an MEP Contract Should Require

An MEP contract should require, at minimum, Contractor's All Risk (CAR) cover for the works, public liability for third-party loss, cover for the contractor's workers, and professional indemnity where the contractor designs. It must say who buys each policy, for what sum, with whom as co-insured and for how long. If it is silent, the owner's own policy and balance sheet become the fallback.

Who should insure what on an MEP project?

The roles in the third column are common practice, not law. The contract allocates them. Write the allocation in the contract, down to the sum and the period.

What should the CAR policy actually say?

A certificate in the file is not cover. Ask for the policy schedule and read the exclusions against your project. Our note on the gaps in erection all-risk cover covers the usual traps: testing and commissioning, defective design, and the handover gap. Add these points to the contract:

• Sum insured equal to the full contract value, increased for free-issue material the owner supplies and for escalation.
• Period that runs from mobilisation to handover plus the defects period, with an extension if the programme slips.
• Testing and commissioning expressly covered. Pressure tests, first energisation and first full-load runs are when equipment fails.
• Co-insured and loss payee status for the owner, and a waiver of subrogation against the owner and its other contractors.
• Notice of cancellation to the owner, and proof that the premium is paid, not only proposed.
• Deductible borne by the contractor, with repair carried out within the programme whether or not the insurer pays.

Who pays when a contractor's worker is injured?

This has changed. The Code on Social Security, 2020 came into force on 21 November 2025 with the other three labour codes (PIB release), and it repealed the Employees' Compensation Act, 1923. Under the Code, an employer is liable to pay compensation for personal injury by accident arising out of and in the course of employment. An employee eligible for ESIC disablement or dependants' benefit cannot also claim employee's compensation from the employer. The Code's section on contracting adds that where an employer contracts out work that is ordinarily part of its trade or business, it is liable to pay the contractor's employee compensation as if the employee had been employed directly, with a right to be indemnified by the contractor, and the employee may claim from the contractor instead. See the Code.

Whether that contracting section reaches an owner whose own business is manufacturing, not construction, is a point for your legal adviser. The safe contract position does not depend on the answer: require the contractor to keep cover in force for every worker on site, including sub-contractors' workers, and to give you the evidence before work starts.

The Occupational Safety, Health and Working Conditions Code, 2020 also speaks to design. It places a duty on the architect, project engineer or designer responsible for a building or construction work to consider the safety and health of workers at the planning stage (OSH Code, section 9). That is one reason a design-and-build contractor should carry professional indemnity.

Does professional indemnity matter in an MEP contract?

Yes, when the contractor or consultant designs. A CAR policy typically excludes the cost of rectifying a defective design itself. If the pump head is calculated wrongly or the duct is undersized, the loss often falls on professional indemnity, if there is any. Require a stated limit, a policy that is renewed for a period after handover, and cover that names the design discipline. Ask the contractor to show who, within its team, signs the design. Where design and execution are separate appointments, each party carries its own policy and the interface is where gaps hide.

How do you set the sums and limits?

Start the CAR sum from the contract value, then add owner-supplied equipment and an allowance for escalation. Set the public liability limit by asking what the worst credible event is: a fire in a running plant, damage to a neighbour's building, a crane load dropped on a public road. The limit should relate to the value of what the works could damage, not to the contract value. Size professional indemnity to the cost of putting a design failure right in your building, such as re-routing a duct or re-doing a pump house, and not only to the design fee. We do not quote limits because adequate figures depend on the site and the insurer, and we did not find a rule that fixes them for a private MEP contract. Public-works contracts set their own in their tender conditions. Ask a broker to price two or three limit options and decide on the cost of the step up.

What contract wording makes the insurance real?

1. No mobilisation until policy copies and premium receipts are lodged with the owner.
2. Each sub-contractor's cover is checked by the main contractor, who stays liable for any lapse.
3. The owner may buy missing cover and deduct the cost from the next payment.
4. Renewal evidence is a condition of each running bill, in the same way as statutory returns.
5. Any claim, near-miss or notice from an insurer is reported to the owner within a stated number of days.
6. Retention and final payment are not released until the defects-period extension is in force. See payment terms and retention in an MEP contract.

How Secured Engineers helps

We deliver turnkey MEPF: design is done in-house, and fire, electrical, HVAC and plumbing can run under one contract. Fire NOC, CEIG and DISCOM filings are done by our own team. We work from offices in Noida (Delhi NCR) and Ludhiana, with 535+ projects across 18+ states and 89.77% repeat clients. We do not sell insurance or audits; what we offer on this topic is a technical read of your draft contract and drawings.

Send your draft MEP contract and BOQ and we will mark where insurance, sums, exclusions and the interface between design and execution are silent. See our MEPF contracting service and the MEPF cost calculator, message us on WhatsApp, call +91 70099 85817, or ask for a free proposal.