Does the Contractor’s obligation to insure the works cease when a new Contractor is appointed?
Yes. If one Contractor is terminated its obligation to insure the Works comes to an end.
The new one should then take out the new insurance under Option A.
Just for clarity (slightly pedantic lawyer point) the obligation to insure, and almost certainly any policy that is project specific, will end at termination of the contract. If there is any gap between one contractor being terminated and anew one being appointed insurance should be sourced to bridge the gap