Engineering Insurance Gaps in Offshore Machinery Projects
In the United Arab Emirates, engineering insurance has become one of the key protection tools for companies working in the field of construction, installation and operation of complex technical systems. However, offshore engineering projects related to offshore platforms, installation of equipment and transportation of machinery face a number of gaps in insurance coverage. These gaps often lead to serious financial consequences, especially in the absence of clear coordination between the types of policies, from Contractors All Risk (CAR) and Erection All Risk (EAR) to Machinery Breakdown and Professional Indemnity.
Underestimated risks in offshore installations
Offshore engineering projects represent a high-risk area where equipment operates under pressure, in an aggressive marine environment, with a high probability of mechanical and electrical failures. The standard CAR policy covers the risks of damage to construction sites, temporary structures, and third parties, but it does not always include protection for equipment installed on offshore platforms. EAR policies designed for the installation and testing phase are often limited to ground-based facilities.
For example, when installing pumping systems or generators on a platform, insurance coverage may end at the moment when the equipment leaves the port, unless an extension of coverage for transportation and installation in an offshore zone is provided. Under the terms of most contracts, the insurance period begins with the unloading of the first equipment and ends with the transfer of the project to the customer, but offshore delays or lengthy trials often exceed these deadlines. Without additional notification to the insurer and an extension of the contract, the company is effectively left without protection at a critical moment.
Problems of equipment and machinery coverage
Machinery Breakdown and Contractors Plant & Machinery Insurance are designed to cover losses incurred in case of sudden mechanical or electrical damage. In offshore projects, this is especially important, because the cost of a unit of equipment, including transportation and customs fees, can reach millions. According to the standard terms of the policy, the insurance amount must include the full cost of the equipment, including delivery and installation, otherwise the under-insurance principle applies, and the company reimburses part of the losses on its own.
However, many organizations in the UAE, especially mid-level contractors, limit themselves to basic coverage, without adding additional options such as protection during loading and transportation, coverage for loss of control system data, or the Replacement Value option. As a result, even with a properly executed policy, “gray areas” remain, such as unforeseen risks that do not relate to either CAR or Machinery Breakdown, for example, gradual corrosion, vibration damage, or testing errors. These cases are often classified as exceptions, and no payments are made.
Arbitration risks and legal liability
A third party is an important participant in an offshore project. Workers, suppliers, contractors and inspectors operate at the site, where any violation of safety regulations can lead to injury or property damage. Policies with the Third Party Liability section should cover such incidents, however, in practice offshore sites often fall under territorial exclusions.
Moreover, the professional responsibility of engineers and designers (Professional Indemnity Insurance) does not always apply to errors in the design or supervision of offshore installations. The standard exceptions are design errors, material defects, and intentional acts. If, for example, the violation occurred due to an incorrect calculation of the pressure in the hydraulic system, the insurer may refuse payment, citing professional negligence, if this risk has not been specified additionally.
The need for an integrated insurance approach
Complex offshore projects require synchronization of different types of engineering insurance. A single coating combining CAR, EAR, Machinery Breakdown and Delay in Start-up (DSU) reduces the likelihood of gaps between the stages of construction, installation and operation. DSU policies are particularly relevant in the Persian Gulf, where weather conditions or delayed equipment deliveries can delay facility commissioning for months, creating salary losses and penalties.
The optimal approach is to create integrated packages that include risk protection during transportation, installation, and subsequent testing. It is also important to include coverage for the maintenance and warranty period, as many incidents occur after the equipment is handed over to the customer. Professional insurance brokers in Dubai are increasingly using the “single project or annual coverage” model, where the contractor receives a single policy for all facilities, which reduces bureaucracy and allows centralized control of coverage conditions.
In conclusion, engineering insurance for offshore engineering projects in the UAE faces three main problems, gaps between different types of policies, underestimation of the cost of equipment, and lack of thoughtful protection for the transportation and testing stages. The solution is to partner with a reliable insurance broker who will carefully assess the risks, help adjust the insurance amounts and review the terms so that each policy corresponds to the actual project cycle. This is the only way companies will be able to minimize financial losses and maintain stability in the rapidly developing offshore infrastructure of the region.
