The construction industry in Sri Lanka is booming, with multiple sectors — residential, commercial, infrastructure — all creating demand. But with growth comes risk. From equipment breakdowns and accidental damage to third-party claims and worker injuries, a construction site involves numerous liabilities. That’s why understanding the types of insurance relevant to a construction site in Sri Lanka is critical for contractors, developers and project owners alike.
In this article, we will explore the main insurance types applicable to construction sites in Sri Lanka, how they operate, why they are necessary, and key tips for selecting and managing these covers. We will also link this to the Sri Lankan regulatory and market context so you can make informed decisions.
Why construction-site insurance matters in Sri Lanka
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Construction projects are exposed to multiple risks: physical damage (fire, collapse, weather), machinery breakdowns, theft, vandalism, delay risks, and personnel injury. For example, local insurance providers describe that the standard “Contractors All Risks” cover handles property damage and third-party liability. wwwallianzlk+3Fairfirst Insurance+3Sri Lanka Insurance+3
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Regulatory frameworks require certain insurance covers. According to a Practical Law country Q&A for Sri Lanka: for projects (especially public sector or FIDIC‐based), “contractors’ all risks insurance, third‐party liability insurance and workmen’s compensation insurance” are among the compulsory coverage types. Open JICA Report+1
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Failure to maintain appropriate insurance may lead to contractual or legal vulnerabilities — for example, the project owner or contractor might be exposed to liabilities arising from accidents, delays or damage to property without adequate cover.
Given this backdrop, let’s examine the main types of insurance for construction sites in Sri Lanka.
1. Contractors’ All Risks (CAR) Insurance
This is often the foundational insurance cover for a construction project.
What it is
The CAR policy (sometimes called “Contractors All Risk Insurance”) is designed to cover the “works” – i.e., the contract works during construction – against sudden and unforeseen physical loss or damage. In Sri Lanka, major insurers list it as a cover for civil construction projects such as buildings, bridges, roads, dams. Sri Lanka Insurance+2Fairfirst Insurance+2
It also often includes third-party liability cover for bodily injury and property damage arising out of the works. Sri Lanka Insurance
What it typically covers
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Damage to or loss of contract works, materials, temporary works, scaffolding, etc. Adzib+1
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Damage to third-party property and bodily injury arising from the construction operations (liability component). Sri Lanka Insurance+1
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Additional cover extensions such as removal of debris, strike/riot/civil commotion, terrorism (depending on insurer). SLIC General+1
Why it’s important
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It ensures that the core physical risks of construction (damage, loss, theft) are financially guarded.
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It gives comfort to financiers, project owners and contractors that unforeseen incidents will not derail the project’s viability.
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It’s frequently required by contract conditions or tender documents in Sri Lanka. D. L. & F. De Saram+1
Key considerations in Sri Lanka
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Sum insured should reflect the contract value (including works + any plant & equipment as specified). Insurers emphasise that the sum insured must not be less than the full value of the contract at completion. Fairfirst Insurance+1
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Duration: The cover typically begins from the time of mobilization and continues through to completion and sometimes the maintenance period. Fairfirst Insurance
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Exclusions: Standard exclusions apply (e.g., wear and tear, inherent defects, design risks, certain natural disasters unless endorsed). It is essential to review policy conditions.
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Third-party liability limits: Because liability risk is significant, ensure the limit is appropriate for the scale of works.
2. Contractors’ Plant & Machinery Insurance
Construction sites heavily rely on plant and machinery (cranes, excavators, loaders, concrete pumps etc). A specific cover is often required for these assets.
What it is
This insurance focuses on the physical loss or damage to mobile and fixed plant & machinery used on the construction site. For example, one Sri Lankan insurer defines “Contractors Plant & Machinery” policy as covering earth-moving equipment (graders, loaders, excavators), concrete mixers, tower cranes, etc. Fairfirst Insurance
What it typically covers
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Fire and allied perils. Fairfirst Insurance
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Burglary / theft (depending on policy). Fairfirst Insurance
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Collision, overturning, falling of machinery etc when in use or idle. Fairfirst Insurance
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Loss or damage due to “any other sudden, unforeseen, accidental damage” not explicitly excluded. Fairfirst Insurance
Why it’s important
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Plant & machinery represent high-cost assets. Damage, breakdown or theft can significantly delay a project and raise costs.
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Because these assets might move around the site (or even between sites), having a dedicated cover alleviates the risk exposure.
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It can complement the broader CAR cover: while CAR covers the works, Plant & Machinery insurance ensures the equipment used in delivering the works is protected.
Key considerations in Sri Lanka
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Sum insured basis: Usually on “new replacement value” basis (rather than market value) for machinery. Fairfirst Insurance
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Use idle vs in-use: Even when machinery is idle or under repair, coverage may apply (per insurer). Fairfirst Insurance
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Exposure to theft: Construction sites are vulnerable to theft of expensive plant; the policy should explicitly include theft or burglary if required.
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Policy period and movement: If equipment is moved between sites or hired out, ensure the policy covers such movement.
3. Erection All Risks (EAR) / Engineering Insurance
This is particularly relevant for sites where there is installation or commissioning of major plant/equipment (industrial works, large mechanical installations).
What it is
The “Erection All Risks” or broader “Engineering Insurance” covers construction, testing and commissioning of machinery or plant, including civil works if part of engineering projects. In Sri Lanka, insurers list these as part of their engineering portfolio. Orient Insurance Sri lanka -+2cilanka.com+2
What it typically covers
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Physical loss or damage to insured plant during erection, testing and commissioning. sgic.lk
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Third-party liability arising from erection works. Orient Insurance Sri lanka -
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Sometimes covers transit, placement, final testing etc. cilanka.com
Why it’s important
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When projects involve heavy installations (e.g., power plants, industrial factories, large mechanical/industrial equipment) the risks are high: damage during erection, commissioning mistakes, mechanical failure, etc.
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It ensures the contracting party and owner are protected during the elevated risk period before operations commence.
Key considerations in Sri Lanka
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Clearly delineate what is covered: from transit to installation to testing.
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Understand the maintenance period and performance testing phase: some claims may occur during commissioning, which is before the facility is fully operational.
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Ensure third-party liability is appropriately addressed — e.g., machinery collapse affecting surrounding property or workers.
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Take note of natural/peril exposures (Sri Lanka is exposed to storms, floods, etc) — check if these are included or need endorsements.
4. Workmen’s Compensation & Employer’s Liability Insurance
Construction sites inevitably involve labour — sometimes heavy labour, risky operations, subcontractors. Insurance is needed to manage the human risk.
What it is
Under Sri Lankan law (for example under the Workmen’s Compensation Act No. 31 of 1957 and other requirements) contractors must maintain compensation policies for workers injured on site. According to sources: “workmen’s compensation policies” are compulsory for construction contracts. D. L. & F. De Saram+1
Another source mentions that ordinary construction insurance in Sri Lanka includes: “contractor’s all risks insurance, third party’s insurance and workmen’s compensation insurance.” Open JICA Report
What it typically covers
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Injury, death or disability of workers employed at the construction site. Compensation to be paid according to statutory guidelines (e.g., degree of injury, loss of earning ability, etc.) Open JICA Report
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Sometimes may include subcontractor’s workers, depending on contract and policy wording.
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Coverage may also extend to outsiders entering the site (depending on policy). For example: “constructor is presently responsible even for the accidents due to trespassing the construction site by local residents.” Open JICA Report
Why it’s important
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Protects the contractor/owner from liability arising from worker injuries and associated compensation costs.
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Statutory requirement means non-compliance can lead to legal risk and penalties.
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Injuries can cause project delays and cost escalations; insurance mitigates such financial burden.
Key considerations in Sri Lanka
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Confirm which “workers” are covered (employees, subcontractors, casual labour) and whether the policy covers all required personnel.
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Check that the compensation sums align with statutory requirements (age, disability, earning ability). Open JICA Report
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Ensure site safety and documentation: many insurers may require compliance with safety standards and good site risk management to validate claims.
5. Third-Party Liability Insurance
Construction sites often pose risks to the general public or nearby property/structures. Liability insurance covers these exposures.
What it is
Liability insurance for third parties covers the insured’s legal liability to pay damages to third parties (bodily injury or property damage) as a result of operations at the construction site.
In Sri Lanka, liability cover is often part of CAR policies, engineering policies, or may be separately taken as “Public/General Liability”. For example, in the engineering policy outline: “Third-Party Liability Insurance: … coverage against legal liabilities arising from such incidents, including legal defence costs and compensation payments.” Orient Insurance Sri lanka -
Why it’s important
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A construction site can impact neighbours, pedestrians, vehicles, adjacent property: e.g., falling debris, vibration damage, collapse, underground cable damage.
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Without liability cover, the project owner or contractor may be exposed to large compensation claims.
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Many contract documents specify that the contractor must maintain third-party liability cover.
Key considerations in Sri Lanka
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Clearly assess what third-party risks are present (adjacent building damage, underground utilities, public access).
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Ensure the liability limit is sufficient for the scale of project and potential exposure.
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Check whether liability cover is combined into CAR or separately issued; review exclusions (some policies may exclude damage due to vibration, excavation, underground works unless specifically endorsed). For example, one CAR policy lists “vibration, removal or weakening of support” as a covered peril. Sri Lanka Insurance
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Consider additional cover for environmental liabilities, if project involves earthworks or de-watering etc.
6. Delay / Advanced Loss of Profits (ALOP) / “Delay in Start-Up” Insurance
Although less commonly mandated in smaller construction projects, for large infrastructure or commercial development projects, insurance for financial losses due to delay can be considered.
What it is
Delay or ALOP insurance covers the financial consequences of a delay in project completion — often due to insured physical damage to the contract works, machinery breakdown, or other insurable event.
According to one Sri Lankan brokerage page: ALOP (also called “Delay in Start Up”) will provide a payout if companies face higher costs or lost profits when a project takes longer than expected. Adzib
Why it’s important
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For large projects, delay can lead to significant loss: lost rental income, financing costs, or contractual penalties.
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Having this cover shows the project owner/contractor has considered not only physical risk, but also the business interruption risk.
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It may be demanded by lenders or financiers for major projects.
Key considerations in Sri Lanka
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This cover is often more expensive and complex; the underwriting will intensely examine project schedule, risk controls, dependencies.
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The trigger for cover is usually an insured physical damage event — i.e., the delay must follow damage/loss that is covered under CAR or equipment insurance.
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Check for waiting period, indemnity period, maximum payout period, exclusion of non-physical causes of delay (e.g., regulatory delay, force majeure sometimes excluded unless endorsed).
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For most typical building construction (residential/commercial), this may not be needed; but for large industrial/infrastructure projects it is worth considering.
Putting it all together: A practical insurance checklist for Sri Lankan construction sites
Here is a simple checklist to guide contractors, project owners or developers when insuring construction sites in Sri Lanka:
| Step | Key Questions |
|---|---|
| Define project scope & risks | What kind of project is it (residential, commercial, infrastructure)? What are the major works, machinery, transportation, subcontractor exposure, adjacent third-party risks? |
| Contract requirements | Does the contract/tender specify mandatory insurance types (CAR, liability, workmen’s compensation)? As per local project guidance, many public tenders in Sri Lanka require CAR, liability & worker compensation. D. L. & F. De Saram+1 |
| Choose the right covers | Based on risk profile, consider: – CAR (works) – Plant & Machinery – Engineering/EAR (if heavy installation) – Third-Party Liability – Workmen’s Compensation – Delay/ALOP (for major projects) |
| Select insurers & policy terms | Check insurer reputation, claims handling, local experience in construction insurance. Review policy wording: sum insured basis, period of cover, inclusions/exclusions, liability limits, endorsements for natural perils, strikes/riots, terrorism (especially in Sri Lanka context) |
| Set sum insured & limits | Ensure full value of contract, machinery value, liability limits reflect exposure. In Sri Lanka, insurers emphasise that the sum insured under CAR should not be less than full value of contract. Fairfirst Insurance+1 |
| Risk-management & documentation | Maintain site safety procedures, proper records of equipment, subcontractors, material deliveries. Many insurers will require risk control measures as part of policy validity. |
| Monitor and review | As project progresses, values may change (e.g., variation orders, additional plant, extended maintenance period). Adjust policies accordingly. Also verify expire dates, renewal, additional exposures (e.g., of subcontractors). |
| Claims preparedness | Ensure you know how to notify claim, what evidence is needed (incident report, photos, loss assessment). Early reporting often helps. Also, ensure the policy covers the maintenance period if required. For example, CAR covers may include the maintenance period. Fairfirst Insurance |
Special Considerations for Sri Lankan Construction Projects
Here are some nuances specific to Sri Lanka that you should keep in mind:
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Local weather and natural perils: Sri Lanka is subject to monsoons, flooding, storms, and sometimes landslides, depending on location. Check whether your policy includes flood/earthquake/cyclone cover or if endorsements are needed.
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Contractor vs Project Owner interests: In many Sri Lankan projects (especially public sector/large infrastructure) the insurance may be taken “jointly” in the name of owner, contractor, subcontractors, financiers. For example, one insurer states the cover can include interests of principal and financiers. Fairfirst Insurance
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Maintenance period coverage: After construction finishes, projects often have a maintenance defect liability period. Ensure the insurance covers this period or that the contract addresses it.
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Subcontractors and hired plant: On many sites, subcontractors bring their own equipment; or plant is hired. Clarify whether hired in equipment is covered by your Plant & Machinery policy, or whether the hirer must insure. Likewise, ensure liability cover includes subcontractor operations.
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Contractual and procurement standards: The Sri Lankan document on construction law notes that insurance types for public projects are “exhaustively set out in the project document”. D. L. & F. De Saram+1
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Training and site safety: While not strictly insurance, better safety practices reduce insurance cost and claims frequency. Insurers may reward good risk management.
Common mistakes & how to avoid them
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Under-estimating sum insured: Choosing values below actual contract or equipment cost will lead to under-insurance and possibly large uncovered losses.
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Assuming one policy covers everything: Different risks require different policies; for example plant breakdown might not automatically be part of CAR.
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Ignoring exclusions: For example, “wear and tear”, “inherent defect”, “latent defect”, certain natural perils may be excluded unless specifically endorsed.
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Not renewing/monitoring policy: A lapsed policy during construction means you’re uninsured for any incident during that gap.
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Ignoring maintenance period risk: Many incidents occur after hand‐over while defects are being rectified; ensure coverage includes that period.
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Not aligning contract and insurance: If the contract demands certain insurance but you fail to comply (wrong limits, wrong insurer, wrong period), you may be in breach of contract.
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Poor documentation: Insurers will ask for incident reports, proof of loss, records of equipment, safety procedures. Without proper documentation, claim may be denied.
Conclusion
Construction projects in Sri Lanka inherently carry a range of risks — physical, liability, delay, human. Having the right insurance packages in place is not just a regulatory or contractual box-to-tick, but an essential component of sound project risk management.
To recap, the main insurance types to consider on a Sri Lankan construction site are:
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Contractors’ All Risks (CAR) Insurance
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Plant & Machinery Insurance
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Engineering / Erection All Risks (EAR) Insurance (if applicable)
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Workmen’s Compensation / Employer’s Liability Insurance
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Third-Party Liability Insurance
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Delay/ALOP/Start-Up Delay Insurance (for large projects)
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