Introduction

Construction All Risks (CAR) insurance is the bedrock of risk management for high-value offshore energy projects like Floating Production Storage and Offloading (FPSO) units, Floating Liquefied Natural Gas (FLNG) facilities, and complex subsea developments.

Its primary function is to provide a financial backstop, protecting the project's works, materials, equipment, and temporary structures against physical loss or damage.

This coverage spans the entire CAPEX lifecycle.

However, a well-structured CAR program transcends its role as a simple indemnity policy.

For offshore projects—characterized by immense capital concentration, non-routine critical operations, and extreme environmental hazards—insurance acts as a powerful  behavioral contract.

It embeds risk mitigation directly into the project execution plan by mandating procedural discipline. Insurers require detailed method statements, independent verification, and formal readiness gates before the most perilous activities can proceed.

These include quay-side heavy lifts of multi-thousand-tonne modules, long-haul ocean tows of hulls, and the intricate offshore installation of moorings and subsea hardware.

In this high-stakes environment, even a minor procedural deviation can lead to catastrophic loss and CAPEX disruption.

CAR insurance, therefore, serves as both a risk transfer mechanism and a governance framework.

Policy Architecture

Most major offshore projects utilize a dual-policy structure, with two complementary CAR placements that are designed to dovetail seamlessly.

The handover between these policies is governed not just by operational custody but, critically, by a  value-based threshold—a rule that is fundamental to avoiding coverage gaps yet is frequently misunderstood.

1. Contractor's CAR

The contractor's CAR policy is tailored for the fabrication phase. Its scope is primarily  yard-centric, covering activities within fabrication yards, assembly areas, and during inland transit or port operations up to the point of load-out.

This policy is structured to handle attritional and moderate-severity losses that are statistically more common in a controlled yard environment.

Consequently, it is written with a relatively modest, fixed limit on liability, designed to reflect typical yard-based exposures rather than the catastrophic potential of marine operations.

The key design principle is that this policy is not intended to cover single-event losses that exceed this pre-defined limit.

2. Owner's CAR

The owner's CAR policy is designed to cover the project's peak risk exposures.

It is  marine-centric, activating for long-haul transit, offshore installation, hook-up, and commissioning.

Its limits are substantially higher, often exceeding the total insured value of the asset itself to account for wreck removal, pollution liability, and other catastrophic loss scenarios during marine campaigns.

The Threshold 

The pivotal element connecting these two policies is the  value threshold rule. While operational handover (e.g., "at the hook of the crane") is well understood, the value handover is equally crucial.

The rule states: whenever the declared value of a single item or operation exceeds the fixed limit of the contractor's CAR policy, coverage must be transferred to the owner's CAR policy.

This is true  even if the activity occurs entirely within the contractor's yard. For example, if a contractor's CAR has a limit of $50 million, and a compressor module valued at $100 million is handled from one location to another, that operation that cannot be covered and endorsed by the contractor's policy.

The risk must be declared to and accepted by the owner's CAR insurers before the lift commences.

This governance, emphasized in industry guidelines prevents a scenario where a catastrophic yard failure results in an uninsured loss because the value at risk exceeded the contractor's placement.

This conceptual diagram illustrates that the trigger for Owner's CAR involvement is not just a change in location (from yard to sea) but also a breach of the value threshold within the yard itself.

Policy: Limits, Deductibles, and Additional Coverages

CAR policies are complex instruments with a layered structure.

Material damage coverage (Section I) is often split into a  primary layer (Section I(A)), sized for the more frequent, lower-severity yard and port risks, and one or more  excess layers (Section I(B)), which provide the high limits needed for peak offshore exposures.

Beyond material damage, policies bundle additional coverages, typically subject to an overall aggregate cap and specific sub-limits. These can include:

• Sue and Labour: Reasonable expenses incurred to prevent or minimize a loss.
• Removal of Wreckage/Debris: Costs to clear the site after an incident.
• Expediting Expenses & Standby Charges: Costs to accelerate repairs or cover vessel standby time to mitigate schedule delays.
• Increased Cost of Construction: Additional costs incurred due to new regulations following a loss.

Deductibles are tailored to the operational reality.

A fixed, per-occurrence deductible is common for yard incidents.

In contrast, marine operations may have significantly higher deductibles or time-based franchises (e.g., the first 72 hours of vessel standby are for the assured's account) to discourage minor claims and align interests.

Marine Warranty (MW)

The role of the Marine Warranty Surveyor (MWS) is formalized through warranty endorsements in the CAR policy.

For defined high-risk operations, the issuance of a  Certificate of Approval (COA)  by the MWS is a condition precedent to coverage.

This means that without a valid COA, insurance coverage for that specific operation is void.

The MWS acts as an independent expert, reviewing and approving critical procedures, vessel suitability, rigging designs, sea-fastening, and contingency plans to ensure risks are reduced to an acceptable level.

Management of Change (MoC)

A COA is issued based on a specific, approved plan. Any deviation from that plan—whether a change in rigging, a different tugboat, or an altered tow route—must trigger a formal Management of Change (MoC) process.

This requires re-engaging the MWS for review and issuance of an updated or amended COA.

A project team that proceeds with a modified plan without MWS re-approval has breached the policy warranty. In the event of a loss, the claim for that operation can be denied, even if the original plan was sound and the change seemed minor.

This principle, reinforced by guidelines like  JR2019-006a, underscores the absolute necessity of procedural discipline.

MWS Involvement:

• Yard load-outs and critical heavy lifts.
• Verification of sea-fastening prior to sail-away.
• Long-haul wet or dry tows of hulls and floating structures.
• Offshore installation of turrets, mooring systems, well risers, and subsea equipment.

Integration and Governance

To transform a CAR program from a passive policy into an active risk management tool, project teams must focus on integration and administrative discipline.

1. Integrate Insurance with Project Execution: Map MWS warranty requirements and COA issuance milestones directly into the project schedule, method statements, and readiness dashboards. Ensure EPC and marine contracts clearly define responsibilities for obtaining MWS approvals.
2. Implement a Formal Threshold Check: For every significant lift or movement in the yard, the lifting plan approval workflow must include a mandatory step: check the item's declared value against the contractor's CAR limit. If the threshold is exceeded, the workflow must trigger a formal notification to engage the owner's CAR coverage.
3. Maintain Administrative Hygiene: Ensure policy endorsements, schedules, and waiver of subrogation clauses are consistent across both contractor and owner placements. Keep a consolidated, accessible file of all handover documents, survey reports, COAs, and MoC records to enable efficient claims processing if an incident occurs.
4. Avoid Common Pitfalls: Proactively manage risks such as ambiguous boundaries between policies, outdated MWS scopes of work, unapproved method deviations, and failure to update declared values as the project evolves. A monthly governance meeting involving insurance, engineering, logistics, and the MWS is a best practice to mitigate these risks.

Thresholds and Approvals on Track

• Identify and publish the contractor's CAR fixed limit within all lifting and logistics governance documents.
• Mandate a declared item value for every significant lift and perform the documented threshold check.
• If the threshold is exceeded, formally trigger the owner's CAR coverage and record this decision in the lift plan file.
• Map all COA milestones against lift, transit, and installation dates; track their status (planned, under review, issued) weekly.
• Ensure endorsements, buy-backs, and waivers are consistent and aligned across both the contractor's and owner's policies.
• Maintain a live register of all warranted operations, linking them to approved method statements and risk assessments.
• Refer to industry best practices for threshold management and for MWS governance.
• Reconcile declared project values monthly to adjust for escalation and ensure premium adjustments are made, avoiding under-insurance.

From Policy to Proactive Governance

Successful execution of complex offshore projects hinges on the alignment of technical excellence with disciplined risk governance.

The dual CAR policy structure is a cornerstone of this governance, but its effectiveness depends on understanding its nuances.

The split between contractor and owner coverage is not merely about a change in physical custody; it is fundamentally driven by a  value threshold  that dictates when the higher-limit owner's policy must engage—even for operations deep within the fabrication yard.

By embedding threshold checks, rigorous MWS gating with COA and MoC discipline, and clear handover protocols into the project's daily rhythm, the CAR program becomes a powerful framework for ensuring readiness. It creates an auditable trail of diligence that provides confidence to project stakeholders, lenders, and