What Is Wrap-Up Insurance?
Wrap-up insurance is a comprehensive liability policy that safeguards all contractors and subcontractors engaged in large-scale projects typically costing over $10 million. It essentially eliminates the need for individual insurance policies. The two main types are owner-controlled and contractor-controlled wrap-up insurance.
Owner-Controlled: Initiated by the project owner to cover all listed contractors, benefiting the builder/contractor.
Contractor-Controlled: Managed by the general contractor to extend coverage to all engaged contractors and subcontractors.
Key Benefits
- Unified Protection: Covers all contractors/subcontractors under one policy.
- Owner or Contractor Managed: Choose either owner-controlled (OCIP) or contractor-controlled wrap-up insurance (CCIP).
- Comprehensive Coverage: Often includes general liability, workers’ compensation, excess liability, and more.
- Avoid Policy Overlap: Ensures no coverage gaps and adequate limits.
Delving into How Wrap-Up Insurance Works
Wrap-up insurance provides peace of mind by ensuring everyone is adequately covered. Avoiding multiple individual liability policies prevents gaps and insufficient limits. For instance, an owner might buy an OCIP covering general liability, workers’ compensation, and other risks like pollution, professional liability, and builders risk. Although pricey, costs can be shared among contractors and sub-contractors.
Types of Coverage Included
General Liability with a Broad Form Endorsement
This policy covers all liabilities for a given project. It includes bodily injury protection for third-party injuries on site or caused by project activities. It also covers damage to third-party property.
Builders Risk
Provides protection against water, weather, and fire damages to buildings under construction, effectively acting as property insurance for construction projects.
Umbrella Liability
Extends limits beyond the primary general liability policy. For instance, with primary coverage up to $2 million and umbrella coverage up to $10 million, a claim up to $8 million would be easily managed.
Workers’ Compensation
Ensures that all contractors and subcontractors receive workers’ compensation coverage, safeguarding workers’ rights.
Commercial Vehicle
Covers liability claims and property damage for vehicles used in the project.
Property Damage
Addresses property damage for all listed in the policy. Can include coverage for equipment and transported tools, adding essential protection via inland marine insurance.
Note: Always be aware of possible exclusions within the policies.
Steps to Secure Wrap-Up Insurance
- Evaluate Project Scope: Assess the scope, size, and potential risks of the project.
- Conduct Pre-Bid Meetings: Discuss with contractors, subcontractors, and insurance providers to ensure all understand needs and expectations.
- Select a Provider: Based on qualifications, financial stability, scope of coverage, and cost.
- Negotiate Terms: Finalize terms, accounting for coverage limits, exclusions, and endorsements.
- Inform and Adapt: Communicate policy details to all involved and establish reporting/claim processes.
- Transition Post-Completion: Move to individual coverage as needed upon project completion.
Limitations to Consider
- Complexity: Requires thorough coordination among multiple stakeholders.
- Cost: Can be substantially high due to premiums, deductibles, and administrative fees.
- Coverage Limits: May not cover design flaws, professional liability, or certain pollution claims — additional policies might be needed.
- Exclusions: Policies often come with exclusions and special conditions.
- Eligibility and Feasibility: Location and inherent risks may affect availability and affordability.
OCIP vs. Contractor-Controlled Wrap-Up Insurance
The essential divergence lies in who administers the insurance coverage—an OCIP is managed by the project owner, whereas a contractor-controlled plan is overseen by the lead contractor. Both offer comprehensive solutions but cater variably based on the controller.
Primary Benefit of Wrap-Up Insurance
It consolidates insurance coverage, simplifying processes and potentially leading to cost savings. Also, it significantly reduces administrative efforts for project stakeholders.
What is a Wrap-Up Exclusion?
These are specific risks explicitly excluded from the policy, necessitating separate insurance for those risks.
Conclusion
Wrap-up insurance is a robust and encompassing solution for large construction projects. By consolidating coverage, it minimizes administrative challenges and averts possible coverage gaps, providing efficient and comprehensive protection.
Related Terms: OCIP, CCIP, workers’ compensation, general liability, builders risk, umbrella liability.
References
- American Subcontractors Association. “Wrap-Up Insurance Program Considerations”.
- U.S. Department of Transportation, Federal Highway Administration (FHWA). “Construction Program Guide”.
- Southeastern Louisiana University. “Comprehensive General Liability Insurance and Broad-Form Comprehensive General Liability”.
- Insureon. “Builder’s Risk Insurance”.
- GEICO. “Umbrella Insurance - How it Works & What it Covers”.
- The Hartford. “What Does Workers’ Compensation Cover?”
- State Farm. “Commercial Auto”.
- Allstate. “Property Damage Liability Coverage — What Is It?”
- American Family Insurance. “Construction Wrap-Up Insurance”.
- Embroker. “Wrap-Up Insurance Packages”.
- New York Department of Financial Services. “Wrap-Up Insurance”.
