Key takeaways
- PIAM describes contractors' all risks (CAR) insurance as cover for physical loss or damage to a construction project from unforeseen events such as fire, natural disasters or accidents, plus third-party liability on and near the site.
- Malaysian construction contracts commonly require the contractor to insure the works, materials and its liability for injury and property damage from site possession until the certificate of making good defects.
- Under standard Malaysian fire policy conditions, cover on the affected property ceases if works increase the fire risk or the building is unoccupied for more than 30 days, unless the insurer endorses the policy before any loss.
- A common CAR wording covers neighbour damage from vibration or weakened support only by endorsement, usually only for total or partial collapse, and excludes the owner's own existing property from third-party cover.
- Injury to the contractor's workers is not a CAR third-party claim; PERKESO's Employment Injury Scheme covers employees, including foreign workers since 1 January 2019.
- Great Eastern General's CAR and EAR claim checklist asks for the claim form, letter of award and bill of quantities, police report, photos and, for third-party claims, the letter of demand or writ.
What is contractor all risk (CAR) insurance, and what does it cover in Malaysia?
Contractor all risk insurance, written as contractors' all risks or CAR, is the policy for the works themselves while they are being carried out. PIAM describes it as cover for physical loss or damage to construction projects due to unforeseen events like fires, natural disasters or accidents during the construction phase, and adds a third-party liability part for injury or property damage to others on the site and in adjacent areas. Its sister policy, erection all risks (EAR), covers the installation, testing and commissioning of heavy machinery, which is what a factory needs when a new production line goes in.
A typical Malaysian CAR wording has two sections:
| Section | What it covers | Renovation examples |
|---|---|---|
| Section I: material damage | Sudden and unforeseen physical loss or damage to the items in the schedule: the contract works (including materials on site) and, if they are listed, construction plant and equipment and the cost of clearing debris | A fire during welding burns new partitions and ceiling boards; a storm soaks an open roof; materials are stolen from a locked site store |
| Section II: third-party liability | What you become legally liable to pay for accidental injury to other people or damage to their property, in direct connection with the works, on or near the site, during the period of cover, plus legal costs agreed by the insurer | Falling debris dents a car parked outside; a passer-by is hurt; a cut pipe floods the shop next door |
Common CAR wordings exclude, among other things: loss caused by faulty design; the cost of redoing defective material or workmanship (damage that defect causes to correctly built parts can still be covered); wear and tear and corrosion; delay penalties and other consequential loss; and vehicles licensed for road use. PIAM lists the same kind of exclusions: inadequate design, construction errors and defective materials.
Cover normally starts when work begins or when the insured items are unloaded at the site. It ends for each part of the works once that part is taken over or put into use, and at the latest on the expiry date in the schedule. Any extension needs the insurer's written consent beforehand, so if the renovation runs late, extend the policy before it expires. Cover during the defects period after handover comes by endorsement, so it is there only if the schedule says so.
Who should buy it: the owner, the tenant or the contractor?
On a project run under a written construction contract, the contractor usually buys it. An overview of Malaysian construction law by Lee Hishammuddin Allen & Gledhill says contractors are commonly required to insure their liability for injury or death and for damage to property, the works, materials and goods, from the date of site possession until the certificate of making good defects, and names the contractor's all risk policy first among those policies. It adds that most standard forms make the contractor indemnify the employer (the owner) against third-party claims arising from the contractor's acts or omissions.
Small renovations are different. Many home and shop renovations run on a quotation and a few WhatsApp messages, with no insurance clause at all. Then whoever pays for the work carries the risk unless someone arranges cover. A CAR schedule can name more than one insured party, such as the owner (called the principal), the contractor and subcontractors, so if your contractor has no policy, ask before the first wall comes down, not after something goes wrong.
| Your situation | Who usually arranges CAR | What you should do |
|---|---|---|
| Factory extension or major fit-out with an architect or engineer and a written contract | The contractor, as the contract requires | Ask for the policy schedule, not only a cover note, and ask to be named as an insured party before you hand over the site |
| Shop or office fit-out by a tenant | The tenant's contractor, or the tenant | Get the landlord's written consent first; the landlord may ask for a fit-out deposit and proof of insurance |
| House renovation with a small contractor | Often nobody, unless you ask | Ask the contractor; if there is no CAR, ask about arranging it for the project, and tell your own home insurer about the works |
| Condo or apartment unit | The contractor, plus whatever the management requires | Ask the management office what it needs before it approves the works |
If you rent, the LH Low & Associates FAQ on commercial tenancies notes that renovations need the landlord's prior written consent and that you may have to reinstate the premises to its original condition when you leave. EdgeProp's tenancy guide adds that a landlord may ask for prior approval, licensed contractors, insurance, deposits and fit-out rules. My guide for tenants of shops and factories explains who insures the building and who insures your fit-out.
Seven things to check on the contractor's CAR schedule
- Names: you, as owner or tenant, are named as an insured party.
- Site and project: your address and the real scope of work.
- Sum insured: the full value of the works at completion, including materials and items you supply yourself. A common CAR wording requires this and cuts claims in proportion if the sum is lower.
- Period: from the start date to handover, plus the defects period if you need it.
- Third-party limit: enough for the worst realistic case, such as the unit below being flooded or a shared wall collapsing.
- Endorsements: vibration and removal or weakening of support, your existing property, and strike, riot and civil commotion, where the job needs them.
- Special conditions: the full wording of every clause listed on the schedule, such as theft security and fire safety on site.
Why your fire insurance may not pay during a renovation
Your house, shop or factory fire policy covers the building and contents you insured, against the perils listed. It was not written for a building site, and three things catch people out during renovation.
1. The works change the risk. The standard fire policy conditions used in Malaysia say that if the nature of the occupation or other circumstances affecting the building are changed in a way that increases the risk of fire, the insurance ceases to attach to the property affected, unless the insured gets the insurer's sanction, endorsed on the policy, before any loss. Welding, grinding, hacking, exposed wiring, paint and thinner stored inside and sawdust piling up are exactly the kind of changes an insurer wants to hear about.
2. The premises stand empty. The same conditions stop cover for the property affected if the building becomes unoccupied and stays that way for more than 30 days, again unless endorsed. A shop closed for a two-month fit-out, or a house the family moves out of during renovation, can fall into this. Great Eastern General's notice to fire policyholders during the 2020 movement control order shows the condition is real: it had to confirm specially that cover conditioned on the premises or construction site being occupied would not be affected by the lockdown.
3. Home policies have their own building-work exclusions. The GREAT Home 360 product disclosure sheet (valid as at 13 August 2026) excludes windstorm damage to any building in the course of construction, reconstruction or repair unless all outside doors, windows and other openings are complete and protected. PIAM's home insurance consumer guide lists alterations, repairs and additions as an optional add-on rather than standard cover, excludes burst pipes while the home is untenanted, and tells you to declare any change to your property to your insurer.
| During the works | What the fire or home policy does | What to do |
|---|---|---|
| Hot work, hacking, materials stored inside | Cover for the affected property can stop if the change increases the fire risk and the insurer has not endorsed it | Write to your insurer before work starts, with the scope and dates, and keep its reply |
| Premises empty for more than 30 days | Cover for the affected property can stop unless endorsed | Tell the insurer how long the premises will be closed and ask for an endorsement |
| Roof, windows or doors opened up | A home policy may exclude storm damage until the openings are complete and protected | Ask the contractor to cover openings, and check that the CAR covers storm |
| Damage to the new works, theft of materials | Not what a fire policy is for | That is Section I of the CAR |
| A neighbour or passer-by claims against you | Not covered by the fire section | CAR Section II, plus your own public liability cover |
The fire policy matters again once the work is done. The renovation has added value, and both PIAM and the GREAT Home 360 sheet remind you to insure for the full cost of rebuilding including renovations, or a claim can be cut in proportion. For a house, see my home insurance guide; for shops and factories, the shop and factory fire insurance guide explains how to list renovation, machinery and stock, each with its own sum insured.
A neighbour's wall cracks or a passer-by is hurt: is third-party liability covered?
Section II of a CAR policy is for exactly this, within limits. A common Malaysian wording pays what the insured is legally liable to pay for accidental injury to third parties or damage to their property, in direct connection with the works, on or near the site. It then excludes:
- Vibration and removal or weakening of support, unless added by endorsement. Even then, a common endorsement pays only when the damage leads to total or partial collapse, only if the neighbouring property was sound before work started, may require a condition report before work starts, and excludes superficial damage and damage that was foreseeable from the way the work was done.
- Injury to workers of the contractor, the owner or any other firm on the project.
- Property of the owner or contractor, or property in their care, custody or control. Your own building is not third-party property, so for renovation works ask whether your existing property can be added to the policy.
- Accidents caused by vehicles licensed for road use, which belong to motor insurance.
- Liability you accepted only by contract, beyond what the law would impose anyway.
Injured workers are covered elsewhere. PERKESO's Employment Injury Scheme protects employees against accidents and occupational diseases arising out of and in the course of their employment, and PERKESO has covered foreign workers under it since 1 January 2019. The contractor, as their employer, is the one who registers them.
Steps that make a third-party claim much easier:
- Before work starts, photograph and video the neighbour's shared walls, ceilings and floors, with dates, and give them a copy.
- Tell the neighbours the work dates and whom to call.
- If something happens, take photos, write down what happened and tell the contractor and the insurer at once.
- Do not admit liability, promise or pay anything yourself: CAR wordings say no admission, offer, promise or payment may be made without the insurer's written consent.
- Send any letter of demand or writ to the insurer as soon as you receive it.
Owners can be sued too. If the contractor's cover falls short, a shop's or factory's own public liability cover may be the next line; my public liability guide explains what it pays and what it excludes.
Worked example: a factory fit-out in Shah Alam, and which policy pays for what
Example only: every figure below is an assumption for illustration, not a real case and not a quote. A factory owner in Shah Alam hires a contractor for a fit-out: new office partitions, a mezzanine, ductwork and lighting. The contract is RM650,000, and the owner buys RM150,000 of air-conditioning units for the contractor to install, so the works are worth RM800,000 at completion. The contractor's CAR schedule shows contract works of RM650,000 only.
| What happens | Which policy responds | Points to watch |
|---|---|---|
| Welding sparks start a fire that burns RM100,000 of new partitions and ceiling | CAR Section I | The works are under-insured: RM650,000 ÷ RM800,000 = 81.25%, so about RM81,250 before the deductible |
| The same fire damages the existing roof and two production machines | The owner's fire policy, if the insurer was told about the works; or the CAR's existing property cover, if it was added | Without an endorsement, the change-of-risk condition can be raised |
| Materials are stolen from the site store over a weekend | CAR Section I, with a police report | The theft security conditions on the schedule must have been met |
| Hacking cracks the next factory's wall | CAR Section II, only with the vibration and support endorsement | Superficial cracks are often excluded; a condition report before work starts helps |
| A worker falls from a scissor lift | PERKESO Employment Injury Scheme | Not a CAR third-party claim |
| Falling ductwork hits a visitor's car outside | CAR Section II | Do not admit liability; forward any letter of demand |
Two things would have changed the outcome at no real cost: putting the owner-supplied air-conditioners into the contract works sum insured, and getting the fire insurer's written agreement to the works before they started. Also remember that an insurer that pays for the damaged roof may then try to recover its payment from whoever caused the fire, which is one more reason for the contractor to carry proper liability cover.
Something went wrong during the works: how to make a CAR claim
- Make the site safe and take reasonable steps to limit the damage. Keep damaged parts for the insurer or adjuster to inspect.
- Notify the insurer at once, by phone and in writing. A common CAR wording says the insurer is not liable for any loss not notified within 14 days of it happening.
- Make a police report for theft, break-ins or malicious damage.
- Take photos and videos of the damaged works, and of any third party's injuries or damaged property.
- Do not rebuild before the insurer has inspected, except for minor damage or what is needed for safety.
- Collect the documents. Great Eastern General's Contractors' All Risk / Erection All Risk checklist asks for the claim form, a written statement of claim listing what was lost or damaged, the letter of award and bill of quantities, purchase or delivery orders, a technical report (for machinery), a repair or replacement quotation, the police report, photographs and, for third-party claims, the letter of demand or writ of summons. Since 1 October 2021, companies also send their registration documents and the authorised signatory's IC.
Read the special conditions before anything happens. In a case study from the Ombudsman for Financial Services (OFS) annual report, a construction company's claim for materials stolen from site storage was rejected for not complying with special conditions on theft prevention and site security. The ombudsman found the full wording of those conditions had not been given in the policy documents, and the insurer reviewed its decision and made an offer, which was accepted. The lesson for owners and contractors alike: ask for the full wording of every condition listed on the schedule, and follow it on site.
Planning a renovation? How I can help before work starts
I look after families and business owners across Kuala Lumpur and Selangor, including Shah Alam, Klang, Puchong, Seri Kembangan, Serdang and Cheras, in Mandarin, English or Cantonese. Before your renovation starts, send me the contractor's quotation or contract, the CAR schedule if there is one, and your current fire or home policy schedule. I will:
- check the CAR schedule against the seven points above and list anything missing;
- help you tell your fire insurer about the works and the closure period, so the change-of-risk and 30-day conditions do not catch you out;
- check what Great Eastern General can arrange for your project. Its public business pages show packages such as Easi-Biz rather than a stand-alone CAR page, while it does publish a claim checklist for CAR and EAR claims, so I ask for your case instead of assuming;
- after handover, update your sums insured so the new renovation, machines and stock are covered from day one.
If your contractor's cover is already enough, I will tell you so. No hard selling.
This is general information, not legal advice. Cover, exclusions and conditions are those in your own policy wording and schedule; who is liable between you, your contractor and your neighbours depends on your contract and the facts; and each claim is decided by the insurer on its own facts.