How To Cover Your Construction Project with Wrap-Up Liability Insurance

Insuring the risks associated with large-scale constructions projects can be a daunting task for the parties involved.

The traditional insurance approach requires each party to procure and maintain separate coverage. Generally, the contractor and subcontractor then include the cost of insurance, plus a mark-up, in their project bids, with the risk 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.

While this approach may be customary, it has its complications. With the number of policies and insurers involved, it creates the potential for unforeseen liability gaps to emerge. Some parties may have inadequate limits, gaps in coverage or no insurance at all. Because various insurance companies are covering one project, each claim can cause costly and time-consuming cross litigation.

As an alternative to having each party obtain separate liability policies, project owners and general contractors can turn to wrap-up insurance to manage their risks.

What is Wrap-up Liability Insurance?

Sometimes referred to as controlled insurance programs (CIP), wrap-up liability insurance programs are centralized insurance and loss control programs intended 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 programs based on the party sponsoring the program:

1. 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.
2. 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 programs are often used for large, single-site projects, you can insure multiple projects under one with a rolling wrap-up program.

What Types of Coverage Do Wrap-up Programs Provide?

Although each wrap-up program meets the needs of a 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. You can also add professional liability coverage to insure architects, engineers and other design professionals working on the project.

What Coverage Is Often Excluded in Wrap-up Programs?

Wrap-up programs typically do not cover any liability occurring away from the project site, as well as any subcontractors, suppliers and vendors conducting off-site manufacturing or the assembling of building components. In addition, any claims arising from goods or materials in transit, preventing haulers and truck drivers from being covered under the program.

They typically do not insure specific operations, such as blasting, demolition or other high-risk operations. However, each program is different, and program sponsors must be familiar with what is and is not covered.  

Benefits of Wrap-up Programs

Wrap-up programs provide several benefits, including the following:

• Saving cost: Wrap-up programs reduce the overall cost of insurance by providing volume discounts for the entire project.
• Consolidated coverage: Under the traditional approach, 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.  
• Higher limits: Most wrap-up programs have very high limits. For example, 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 under a wrap-up program, the limit should be sufficient to cover the incident.
• Centralized safety: Program sponsors, working in conjunction with their brokers, the insurer and safety professionals, can maintain centralized safety and risk management services. This reduces the frequency and severity of injury and property damage claims, thereby reducing insurance costs for the project.
• Managing claims: Because a single insurer is the control point for managing claims, the process tends to be more efficient under wrap-up programs.
• Reduced disputes: By covering all parties on a project under one policy, wrap-up programs reduce coverage disputes and subrogation issues between insureds and insurance carriers.
• Project accessibility: For contractors and subcontractors, wrap-up programs can provide them with access to projects they may not have otherwise been able to insure. 

Potential Drawbacks

Because wrap-up programs often offer a broad range of coverage for many entities, they can be expensive to obtain. However, program sponsors can reduce costs by selecting higher deductibles or distributing premium costs to all parties covered under the policy.

Wrap-up programs tend to encompass several types of coverage for different organizations, program sponsors generally inherit administrative tasks. Beyond purchasing the wrap-up program, sponsors may have to review and approve program documents, meet with underwriters and review claims. To address these issues, plan sponsors can designate or hire individuals to help administrate the programs, which may add to overall costs.

While wrap-up programs often result in cost savings, like any insurance policy, they are subject to market fluctuations. With this in mind, be sure to review and consider the potential cost savings.

Additional Information

Access Insurance Group Ltd understands that implementing a wrap-up program can be a complicated process. There is no “one size fits all” model, and each program needs to be analyzed and tailored to meet a project’s specific needs. While a traditional commercial insurance policy might seem sufficient for smaller projects, wrap-up programs offer a more streamlined and comprehensive solution for large-scale construction endeavors.

If you are interested in securing a wrap-up insurance program for your next construction project, consider getting a quote for commercial insurance in Edmonton, Red Deer, or Leduc. Our team of experts at Access Insurance Group Ltd will be happy to walk you through your coverage options and help you pick the best option for your project.