Covering all of the risks associated with a large-scale construction project can be described as nothing short of daunting. In addition to all of the exposures you personally face as an owner/general contractor, you also have to deal with different forms of insurance coverage for all of your subcontractors. That means having to audit their insurance for terms, conditions and exclusions or face the prospect of unforeseen liabilities emerging down the road.
Given this overwhelming scenario, it’s no wonder that wrap-up insurance programs have steadily increased in popularity. This type of coverage is so named because it is project specific, and it’s designed to insure the owner and all contractors who work on the project under a single insurance package. Wrap-up programs are generally used when the project cost is expected to exceed $100 million. Either the owner or the general contractor can purchase wrap-up insurance. When the owner purchases the wrap-up protection, the program is often referred to as an Owner-Controlled Insurance Program (OCIP). If the general contractor purchases the wrap-up insurance, it is known as a Contractor-Controlled Insurance Program (CCIP). However, keep in mind that regardless of what name it is referred to, the coverage is still underwritten by an insurance carrier.
There are some significant benefits to using this type of insurance. Because the purchaser is granted “named insured” status under the policy, they have the authority to select the insurer and the types and limits of coverage. It also allows the purchaser to set safety standards for the project.Of course, there are cost savings that result from buying all your insurance in a package. Some proponents of this type of insurance also believe that it reduces costs on a net basis because subcontractors do not need to factor insurance costs into their bid. This is especially true in today’s insurance marketplace, where smaller contractors are having a harder time finding coverage.
Although each wrap-up program is uniquely designed to fit the needs of the project being insured, most wrap-up programs cover workers’ compensation, employer’s liability, general liability and umbrella liability. In addition, you may want to consider adding builder’s risk, contractor’s pollution liability, errors and omissions insurance and subcontractor default insurance coverage when you are working with your carrier to develop a wrap-up program. The cost for this type of coverage is usually about 2% of the cost of the work performed.
There is another factor you may want to consider when contemplating this type of insurance. Wrap-ups increase the purchaser’s administrative tasks. In addition to taking the responsibility for purchasing the insurance, as named insured you must review and approve all program documents, attend quarterly stewardship meetings, meet with underwriters and review claims.
Despite these additional responsibilities, wrap-up programs can be a cost-effective way to insure against the risks and exposures that are inherent to your particular project. It also provides a tool for quality control by giving you the ability to coordinate the performance standards for all the subcontractors who will work for you.