Insuring all of the risks associated with large-scale construction projects is a complicated business. The typical approach requires each party to procure and maintain separate coverage. Risk is then pushed downstream — from owners to general contractors, and from general contractors to subcontractors — through contractual indemnifications, contractually mandated minimum insurance requirements and additional insured provisions.
Because of the number of policies and insurers involved, this approach is often more expensive and can create the potential for unforeseen liability gaps. Some parties may have inadequate limits, gaps in coverage, or no insurance at all. Moreover, because there are various insurance companies covering one project, each claim has the potential to cause costly and time-consuming cross litigation.
It's not the right choice in every case, but there is a better way. Rather than having each party obtain separate liability policies, project owners and general contractors can turn to a “wrap-up” insurance program to manage their risks.
What is Wrap-up Liability Insurance?
Sometimes referred to as controlled insurance programs (CIPs), wrap-up insurance programs are centralized insurance and loss control programs designed to protect the project owner, general contractor and subcontractors under a single insurance policy or set of policies for the construction project.
Insurers typically offer two types of wrap-up insurance programs based on the party sponsoring the program:
- Owner Controlled Insurance Program (OCIP): Under an OCIP, the project owner sponsors and controls the program. Accordingly, the project owner is the first named insured, and the general contractor, subcontractors and other participants are named insureds.
- Contractor Controlled Insurance Program (CCIP): Under a CCIP, the general contractor sponsors and controls the program. The general contractor is the first named insured, and the subcontractors and other participants are named insureds. Depending on the program, the project owner is either an additional insured or named insured.
While wrap-up insurance programs are most frequently used for large, single-site projects, a rolling wrap-up can be used to insure multiple, smaller projects under one program.
What Does Wrap-up Insurance Cover?
Although each wrap-up insurance program is designed to meet the needs of the specific project, most programs insure employer’s liability, general liability and excess liability exposures for claims arising from the construction project at the construction site during the policy period.
In many instances, builder’s risk, environmental liability, contractor default and other types of insurance can be included under a wrap-up program. Professional liability coverage can also be added to insure architects, engineers and other design professionals working on the project.
Liability occurring away from the project site is generally excluded under wrap-up insurance programs. Accordingly, subcontractors, suppliers and vendors conducting off-site manufacturing or the assembling of building components may be excluded from the program. Claims arising from goods or materials in transit are often also excluded, preventing haulers and truck drivers from being covered under the program.
Wrap-up insurance programs typically do not insure specific operations such as blasting, demolition or other high-risk operations. However, each program is different, and it is critical for program sponsors to be familiar with exactly what is and is not covered.
Benefits of Wrap-up Insurance Programs
Wrap-up programs can provide a number of benefits, including the following:
- Potential cost savings: Wrap-up insurance programs are designed to reduce the overall cost of insurance by providing what amounts to volume discounts for the entire project.
- Consolidated coverage: Under the traditional approach by which parties procure their own insurance, the project owner and general contractor can set minimum insurance requirements for downstream participants. However, it can be difficult to determine whether contractors and subcontractors have obtained the correct limits and types of coverage. By contrast, under wrap-up programs, the controlling entity exerts greater control over the types, scope and limits of coverage. Receiving a contractor’s Certificate of Insurance (COI) doesn’t offer the same peace of mind, because you don’t know the policy details or even if what is showing on the certificate is accurate.
- Higher limits: Most wrap-up programs have very high limits. If a major disaster occurs at a project and is not covered by a wrap-up program, the responsible contractors may not have adequate limits to cover the claim. Thus, the owner or general contractor may be on the line for the difference. However, if the project is covered by a wrap-up program, the limit should be sufficient to cover the incident.
- Centralized safety and risk management: Program sponsors, working in conjunction with their brokers, the insurer and safety professionals can maintain centralized safety and risk management services. Doing so can reduce the frequency and severity of injury and property damage claims, thereby reducing insurance costs for the project.
- Efficient claims processing: Because a single insurer is the control point for managing claims, the process tends to be more efficient under wrap-up insurance programs.
- Reduced disputes among insured parties: By covering all of the parties on a project under one policy, wrap-up programs reduce coverage disputes and subrogation issues between insureds and insurance carriers for covered claims that occur on the job site.
- Access to projects: For contractors and subcontractors, wrap-up programs can provide them with access to projects that they may not have otherwise been able to properly insure.
Implementing a wrap-up insurance program requires real expertise. There is no “one size fits all” model, and each program needs to be properly analyzed and tailored to meet a project’s specific needs.
If you are interested in insuring your next construction project with a wrap-up insurance program, reach out to us and we will take the time to walk you through the ways you can protect your business and its projects.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. For more information on Wrap-Up Insurance policies, contact us online or 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.