Who pays when excavation cracks the neighbour's wall?

Usually the contractor, and usually out of pocket. Vibration and the removal or weakening of support is a standard exclusion in Malaysian liability wordings — both in the third-party liability section of a typical CAR policy and in a standalone public liability policy — and it only comes off if it was specially endorsed back on before the work started. Three situations on a typical Penang site show how that plays out, and none of them get better after the crack has already appeared.

1 · A terrace house party wall, mid-renovation

A contractor is deepening a footing along one side of a terrace unit so the owner can add a floor. The wall next door — shared brick construction, decades old — is not part of the job, but it sits directly against the excavation. Within days a crack opens along the party wall.

The third-party liability section of a typical CAR policy indemnifies the insured for sums it becomes legally liable to pay for accidental loss of or damage to property belonging to third parties, happening in direct connection with the works and in the immediate vicinity of the site. On its face, a cracked party wall next to an open excavation is exactly that. But the special exclusions to that same section take vibration and the removal or weakening of support straight back out — along with any damage resulting from it — unless it was specially agreed upon by endorsement.

"damage to any property or land or building caused by vibration or by the removal or weakening of support … (unless specially agreed upon by endorsement)"

Excavating along a shared wall is the textbook trigger for this exclusion, not an edge case of it. The same carve-out appears in a standalone public liability wording too, in its general exceptions rather than anything specific to construction — so a claim for a damaged party wall does not become easier to run just because the policy on the table is a public liability policy instead of a CAR.

2 · A pre-war shophouse beside a new site

A new building goes up next to a row of pre-war shophouses — old lime-and-brick construction that was never built with nearby piling in mind. The rig starts driving piles a short distance away, and hairline cracks appear on the shophouse's front wall within the week.

PAM 2018 treats this as a known gap, not a hidden one. Whichever version of Clause 20 applies, the contract requires the CAR policy to carry a list of perils by endorsement "unless covered by the standard CAR Insurance policy" — and vibration and weakening of support is named on that list, alongside ground subsidence and existing underground cables. That instruction exists precisely because the standard CAR wording does not carry it on its own. See what a contractor needs to check before tendering for the rest of that endorsement list.

3 · Piling near an existing building — who pays, contractor or employer

A contractor is piling for a new development close to an occupied building next door. Ground movement from the piling shows up as cracking and slight tilting on the neighbouring structure. None of what happens next depends on which party bought the CAR policy.

Under Clause 18.1 and 18.2 of PAM 2018, the contractor is liable to indemnify the employer against damage — including property damage — arising out of or in the course of the works, where that damage is due to the contractor's own negligence, omission, default or breach of contract. Clause 18.4 closes the obvious escape route: that indemnity is not reduced or defeated because the employer, architect or consultant also failed to supervise the site properly. If the neighbour claims against the employer — common enough, since the employer is usually easier to find and better resourced than a subcontractor — the employer can pass that cost straight back to the contractor under Clause 18, independently of whether either party's liability insurance responds.

Clause 19.1 is meant to be the backstop. It makes public liability insurance a condition precedent to starting work at all, taken out in the joint names of employer, contractor, sub-contractors and interested parties, covering third-party injury and property damage arising out of the works. That is the policy that would normally answer a neighbour's claim. It is also the policy carrying the same vibration and removal-of-support exclusion described above — so the condition precedent gets satisfied on paper, the policy gets issued, and the specific claim still gets declined unless the endorsement was arranged.

Frequently asked

Does a Contractor All Risks (CAR) policy cover a neighbour's wall cracked by excavation or piling?

Not as standard. The third-party liability section of a typical CAR policy indemnifies the insured for sums it becomes legally liable to pay for accidental loss of or damage to property belonging to third parties, happening in direct connection with the works and in the immediate vicinity of the site — which on its face covers a cracked wall next door. But the special exclusions to that section carve out damage to property caused by vibration or by the removal or weakening of support, along with any injury or damage resulting from it, unless it was specially agreed upon by endorsement. Excavation and piling are the textbook cause of exactly this kind of damage, so this exclusion is usually what decides the claim.

Does a standalone public liability policy cover it instead?

The same exclusion appears there too. A standard Malaysian public liability wording excludes liability for loss of or damage to property caused by vibration or by the removal or weakening of support, and for any bodily injury or property damage resulting from that loss or damage. It sits in the policy's general exceptions, not something added only for construction risks, so switching from a CAR policy's liability section to a standalone public liability policy does not get around it.

Can the vibration and removal-of-support exclusion be taken off the policy?

Yes, but only by endorsement arranged before the work that causes the damage, not after. The CAR wording's own exclusion is written as applying unless specially agreed upon by endorsement, and PAM 2018 separately lists vibration and weakening of support among the perils a CAR policy has to carry unless the standard policy already covers it. Both point the same way: this is cover that has to be asked for in writing, not assumed to be there.

Under PAM 2018, does the contractor or the employer end up paying for the crack?

Clause 18.1 and 18.2 make the contractor liable to indemnify the employer for damage arising out of the works where that damage is due to the contractor's own negligence, omission, default or breach of contract, and Clause 18.4 says that indemnity is not reduced even if the employer, architect or consultant also failed to supervise the site properly. So if the neighbour claims against the employer, the employer can pass the cost back to the contractor under Clause 18 — separately from whatever the liability insurance does or doesn't pay.

Clause references are to the PAM 2018 standard form of building contract. Other contract forms, including the PWD / JKR family used on government work, are structured differently and the clause numbers do not correspond. Policy wording quoted is standard Malaysian CAR and public liability language — the exclusions and endorsement wording in your own policy schedule govern. This page is general information, not advice on a specific claim.