What Is Wrap-Up Insurance?
Wrap-up insurance is a liability policy that serves as all-encompassing insurance that protects all contractors and subcontractors working on large projects costing over $10 million. The two types of wrap-up insurance are owner-controlled and contractor-controlled.
Owner-controlled insurance is set up by the owner of a project for the benefit of the builder or contractor to cover all listed contractors. The general contractor, meanwhile, may use a contractor-controlled insurance program to extend coverage to all the contractors and subcontractors signed up on the project.
KEY TAKEAWAYS
- Wrap-up insurance is a liability policy that acts as all-encompassing insurance protecting contractors and subcontractors.
- Owner-controlled insurance is set up by the owner of a project for the benefit of the builder or contractor to cover all listed contractors.
- A contractor-controlled insurance program extends coverage to all the contractors and subcontractors signed up on the project.
- Be aware that wrap-up insurance policies may have explicit exclusions from them.
- Upon completion of the development project, the site owner will want to transition to more individual coverage as needed.
Understanding Wrap-Up Insurance
The intent of a wrap-up insurance policy is to provide peace of mind that everyone involved in a project is insured properly. Wrap-up insurance is sweeping blanket coverage that protects the owner, contractors, and subcontractors. Wrap-up insurance is important because it avoids the need for every contractor and subcontractor to obtain their own liability insurance. If there were several policies, there might be gaps in the coverage or insufficient limits. Instead, wrap-up insurance is more effective at making sure that all of the liability risks are covered adequately.
For example, consider an owner-controlled insurance program purchased by the owner on behalf of the builder or contractor. Counting add-ons, the insurance includes workers compensation, general liability, excess liability, pollution liability, professional liability, builder’s risk, and railroad protective liability. While the cost of wrap-up insurance can be expensive, the cost can be divided among the general contractors and sub-contractors.
Types of Wrap-Up Insurance Coverage
Wrap insurance covers a number of risks for you, your project, and your workers. Policies can vary, but may include:
General Liability with a Broad Form Endorsement
This covers all liabilities for a project, including bodily injury coverage against third-party injuries that occur on the site or if those injuries are the result of work-related activities by the contractor, subcontractor, or owner. Also, it protects third-party property against damage caused by anyone covered under the policy.
Builders Risk
Builders risk covers for any water, weather, and fire damages to a building under construction. In other words, builders risk is essentially the same as property insurance except this covers buildings under construction.
Umbrella Liability
Umbrella insurance provides coverage beyond the coverage limit for a general liability policy. For example, let’s say a general liability policy covers up to $2 million in damages and the umbrella liability policy provides $10 million in coverage. If there was a $8 million dollar claim, the general policy would cover first $2 million while the remaining $6 million from the claim would be covered by the umbrella policy.
Workers’ Compensation
Workers’ compensation provides coverage for workers’ compensation insurance to all of the enrolled contractors or subcontractors on the project.
Commercial Vehicle
Commercial vehicle insurance covers cars, vans, trucks, or specialty vehicles used on the construction project against liability claims and property damage.
Property Damage
This covers property damage of all the parties named on your policy. Also, equipment floaters for specialized equipment and tools can be added as well as inland marine insurance for tools and equipment that has been transported to and from the job site.
Important: Wrap-up insurance policies may have specific exclusions; be aware that any of the items mentioned above may be explicitly disallowed from coverage.
How to Secure Wrap-Up Insurance Coverage
There are specific steps that often must be taken in sequential order for wrap-up insurance coverage to be secured. First, the development team must examine the project’s scope, size, and length to determine whether wrap-up insurance is appropriate. Think about things like the project’s type, projected costs, schedule for completion, and any potential risks.
To discuss the project and the potential inclusion of a wrap-up insurance program, hold pre-bid meetings with prospective contractors, subcontractors, and insurance providers. This enables stakeholders to know what to expect and what is expected of them right away. This will also flag limitations early in the construction schedule process.
The project owner often chooses whether to undertake a wrap-up insurance program based on the advice and evaluation given by insurance experts. It is up to the project owner to select an insurance provider or underwriter. The choice is made based on the provider’s qualifications, standing, financial stability, scope of coverage, and cost.
The terms and conditions of wrap-up insurance may be negotiated, though be mindful that underwritten calculations have often been substantiated and approved by the issuing company. You must also be mindful of specific terms such as coverage limits, the length of the insurance, the precise coverages included, the deductibles, the exclusions, and any further endorsements necessary.
After acquiring the wrap-up insurance policy, inform all contractors and subcontractors participating in the project of the coverage. Make sure they are aware of the policy’s roles, obligations, and responsibilities. Establish processes for reporting, documenting, and addressing claims as well as ongoing oversight and policy compliance with each impacted party.
Limitations of Wrap-Up Insurance
Wrap-up insurance has some restrictions. Wrap-up insurance policies are intricate and call for careful planning and coordinating. They require input from the project owner, general contractors, subcontractors, and insurance firms; therefore, coverage requires substantial collaboration as it can be difficult to coordinate coverage, secure suitable restrictions, and manage the different stakeholders.
Given the size and high value of the projects it covers, wrap-up insurance can be pricey. The premiums, deductibles, and other expenses related to obtaining and managing the insurance, as well as any administrative fees, may be substantial. Due due to complexity and uncertainty with long-term projects, the project budget may need to account for these higher expenses.
Wrap-up insurance frequently offers protection for particular projects or construction phases but may not cover all facets of a project. A wrap-up policy may not cover some risks such as professional responsibility, design flaws, or pollution liabilities. Project leads must be mindful of these gaps that may call for additional insurance coverage.
On a related note, wrap-up insurance contracts frequently contain a number of exclusions, limitations, and conditions even in the realms they do cover. For instance, these might restrict coverage for particular types of claims or losses. For example, the Office of General Counsel for New York has set forth restrictions for wrap-up insurance for public development projects.1
Last, wrap-up insurance may not always be easily accessible or reasonably priced, depending on the location and nature of the project. Insurance companies may have special requirements or limits before selling them. In addition, the inherent risk of a specific build may be so large that it is cost prohibit or administratively not feasible for any third-party insurer to agree to take on the risk.
What Is the Difference Between an OCIP and Wrap-Up Insurance?
OCIP (Owner Controlled Insurance Program) and wrap-up Insurance are both types of insurance policies used in construction projects. The main difference lies in who obtains and controls the insurance coverage. In an OCIP, the project owner purchases and manages the insurance, while with wrap-up coverage, the general contractor or project sponsor obtains and oversees the policy. The coverage provided and the parties covered may vary in each type of insurance.
What Is the Primary Benefit of Wrap-Up Insurance Coverage?
The primary benefit of wrap-up insurance coverage is that it consolidates insurance coverage for all contractors and subcontractors involved in a construction project under a single policy. This streamlines the insurance process, reduces administrative burdens, and can lead to cost savings for project stakeholders.
What Is a Wrap-Up Exclusion?
A wrap-up insurance exclusion refers to specific risks or coverages that are explicitly excluded from the coverage provided by a wrap-up insurance policy. These exclusions outline the risks or situations that are not protected under the policy and may require separate insurance arrangements or endorsements to address those excluded risks.
The Bottom Line
Wrap-up insurance is a comprehensive insurance policy used in construction projects. It provides coverage for all contractors and subcontractors involved in the project under a single policy. It simplifies the insurance process, reduces administrative costs, and offers potentially significant cost savings. The policy typically includes general liability, workers’ compensation, and excess liability coverage for the duration of the project.
To read the full article, click here.