EAR COVERAGE: WHAT CONSTITUTES A FAULT IN ERECTION?

Introduction
When considering the application a particular policy wording it is sometimes
instructive to review another, similar wording of the same policy type in order to
compare and contrast. This can help to clarify the meaning of a particular word or
phrase in the readers mind.
Whilst Contractors All Risks (CAR) and Erection All Risks (EAR) policies provide
similar cover, there are important differences.
CAR is designed to cover the Principal/Main Contractor and sub-contractors against
all risks of damage to contract works, temporary facilities, construction plant,
equipment and machinery and third party legal liabilities for property damage
and/or bodily injury arising out of the execution of the contract works.
The EAR policy is intended to cover the Principal/Contractors/Manufacturer or
Supplier of machinery or plant, as appropriate, against damage to the contract
works during the course of the erection of machinery, plant and steel structures,
(The International Association of Engineering Insurers), in addition to the other
material damage risks and third party liabilities covered by the CAR policy.
Both policies cover all risks of loss and/or damage to the insured property, unless
otherwise specifically excluded.
As this discussion is concerned with defective/bad workmanship and the meaning of
faults in erection, the various other policy exclusions, terms and conditions
applicable are not considered here. The reader should refer to the standard Munich
Re CAR and EAR wordings, both of which are freely available, for details of other
terms and conditions.
CAR Policy
Under Section 1 Material Damage, Special Exclusion d) states that Insurers shall
not be liable for:
the cost of replacement, repair or rectification of defective material and/or
workmanship, but this exclusion shall be limited to the items immediately affected
and shall not be deemed to exclude loss of or damage to correctly executed items
resulting from an accident due to such defective material and/or workmanship
EAR Policy
Section 1 Material Damage, Special Exclusion c) states that Insurers shall not be
liable for:
loss or damage due to faulty design, defective material or casting, bad
workmanship other than faults in erection

This exclusion can be amended by extending the policy to include Endorsement

200, Cover of Manufacturers Risk, whereby the above exclusion is replaced by the
following wording:
all costs related to repair and/or replacement of parts and/or items directly affected
by faulty design, defective material or casting, bad workmanship other than faults
in erection, which the Insured would have incurred for rectifying the original fault
had such fault been discovered before the loss occurred
In effect, all resultant damage consequent upon the defective design, material,
casting or workmanship is covered under the policy.
Differences in Cover
The standard CAR policy excludes loss or damage consequent upon defective
workmanship (however allows for resultant damage to non-defective items arising
from an accident due to the defect). The standard EAR policy excludes bad
workmanship other than faults in erection.
The standard CAR policy allows for resultant damage consequent upon an accident
caused by the defect, whilst the standard EAR policy does not, (unless modified by
way of inclusion of the Manufacturers Risk endorsement).
Whilst defective workmanship is excluded under the CAR policy, a type of bad (i.e.
defective) workmanship is specifically allowed under the EAR wording; that is faults
in erection.
Meaning of Faults in Erection
Under the standard EAR wording damage consequent upon the failure of an item
which had been badly manufactured, so rendering it defective, is excluded as this
constitutes bad workmanship. A loss due to the failure of a component consequent
upon defective material or casting is likewise excluded.
Faults in erection occur on site and could be the result of an aberration by the
erector. There is a school of thought amongst loss adjusters that the EAR bad
workmanship exclusion refers solely to off-site activities, i.e. design and
manufacture, and that any loss/damage caused on site by bad workmanship is
covered as this constitutes a fault in erection.
This is an argument commonly advanced by the Insureds advisers, however is it
correct? Why would the CAR Underwriter exclude all bad workmanship (other than
resultant damage), but the EAR Underwriter cover all damage consequent upon bad
workmanship, so long as it is carried out on site?
There is no definition of bad workmanship or faults in erection under the EAR policy.
What, then, constitutes a fault in erection?

The Oxford English Dictionary defines fault, in the context of the policy wording,
as a defect. In other words damage consequent upon defective erection is covered
under the policy.
In terms of the civil law fault refers to a mistake or error, i.e. negligence. In other
words the act or omission that constitutes the fault must be accidental. If corners
were deliberately cut to save time, for example, this would not be regarded as a
fault in erection as the act would be deliberate rather than accidental.
The Oxford English Dictionary defines erection as the act of erecting a structure or
object. The same dictionary notes that erecting means to raise to a rigid or
upright condition; to fix in an upright position. This fits with the purpose of the EAR
policy: to cover the erection of machinery, plant and steel structures.
In practical terms, what constitutes a fault in erection, the consequence of which is
covered under the policy?
Consider the following simple examples:
1) An HV cable is jointed incorrectly.
damage to the contract works.

As a result there is a flashover, fire and

2) A structural steel brace is not tightened correctly and fails as a consequence,

resulting in partial collapse of the works.
The jointing of an electrical cable, whilst forming part of the overall erection
process, is not in itself an activity of erection. It does not therefore constitute a fault
in erection and resultant damage falls excluded as bad workmanship. The position
would be the same if the flashover was caused as a result of a cable joint which was
defective in materials.
In the second scenario, the correct tensioning of the structural steel brace is an
activity of erection in that it forms part of fixing the works in an upright position.
The bad workmanship which causes the partial collapse of the works is, therefore, a
fault in erection and the resultant damage is covered under the policy.
Conclusion
Faults in erection should be interpreted as just that and not as a catch-all to cover
anything and everything that might fall under the broader meaning of bad
workmanship. The term is not as wide in meaning or intent as bad workmanship
which may occur during the process of erecting the plant or machinery.
The policy does not automatically respond to claims for damage caused by bad
workmanship simply because the bad workmanship occurs on site. The type of bad
workmanship giving rise to the damage must fall into the category of faults in
erection in order to be recoverable under the policy.
David Todd FCII, FCILA, FUEDI-ELAE July 2013