To identify the territory of regulation and tax of a construction risk consider:
1. The nature of the cover provided;
2. The location of the insured property; and
3. The location of the insured’s residence(s) or business establishment(s).
CAR and EAR policies cover contract works and associated property against the risk of damage by perils not specifically excluded. CAR and EAR policies may be extended and can be combined with such insurances as public or employers’ liability and business interruption. If so, the premium should be split between the different risks which should be considered separately for location of risk purposes.
The location of fixed property will normally create a location of risk but for moveable property the rules are more complex. Please see “ Moveable property” in the “Property” section of this guidance for further details. Generally miscellaneous financial loss risks, e.g. business interruption, will follow the treatment of the property risk.
Where policies cover liability risks the place of the business establishment of the insured most closely associated with the risk should be used. It is possible for the construction site itself to constitutes an establishment for the purposes of identifying the location of liability risks, however this will depend on the nature of the activity covered. Many tax authorities will also look at duration of the construction to determine whether or not an establishment is created, generally if the site is open over one year it can be treated as an establishment.
Machinery and plant insurance covers losses arising from physical damage to moveable property.
In most territories, the risk location is where the moveable property is normally situated.
The main exception to this rule is in the EEA where the regulatory risk location for moveable property is the territory where the insured is resident but the tax risk location remains the location of the moveable property.
If the contract covers moveable property situated in more than one territory there may be multiple risk locations.
Where the moveable property’s location is uncertain or variable, the risk location is the territory in which the insured’s residence or business establishment is located.
Please note: In some territories, e.g. Canada and the US, the location of the insured’s residence or business establishment creates a risk location irrespective of the physical location of the insured property. Consequently, if the insured property is in a different territory from the insured’s residence or business establishment, there are two territories for regulation and tax.
Definition of 'business establishment'
European Union (EU) legislation defines the term ‘establishment’. Outside the EU the term is not so well defined, so in the absence of any contradictory guidance, it is appropriate to follow the EU approach.
Examples of business establishments:
- subsidiary companies
- branches of companies
- representative offices
- offices managed by businesses’ own staff
- tied selling agents
- factories and workshops
- mines and quarries
- oil and gas wells
- drilling platforms fixed to sea bed
Risk locator tool
Introduction to Risk LocationWhat is risk location and why is it important ?
Introduction to risk location
Establishing the risk location
To help establish risk location please consider the questions provided via the link below
Class of business guidance
To help you establish the risk location please consider the class of business
Risk Location Examples
The interaction of different territorial rules can make a given scenario complex. Applying the principles set out will assist market participants in establishing the risk location.
Lloyd's International Trading Advice (LITA)
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