What Is Wrap-Up Insurance?

What Is Wrap-Up Insurance?

Let me explain wrap-up insurance to you directly: it's a liability policy that functions as an all-encompassing insurance solution, protecting all contractors and subcontractors on large projects that cost over $10 million. There are two main types—owner-controlled and contractor-controlled.

With owner-controlled insurance, the project owner sets it up for the benefit of the builder or contractor, covering all listed contractors. On the other hand, a contractor-controlled program allows the general contractor to extend coverage to every contractor and subcontractor involved in the project.

Key Takeaways

Here's what you need to know upfront: wrap-up insurance serves as a comprehensive liability policy that safeguards contractors and subcontractors. The owner-controlled version is established by the project owner to cover builders and all listed contractors. A contractor-controlled program, meanwhile, provides coverage to all signed-up contractors and subcontractors.

Keep in mind that these policies often include explicit exclusions, so review them carefully. And once the project wraps up, you'll want to shift to more individualized coverage as required.

Understanding Wrap-Up Insurance

The core purpose of a wrap-up insurance policy is to give you peace of mind by ensuring everyone on the project is properly insured. It offers sweeping blanket coverage for the owner, contractors, and subcontractors. This is crucial because it eliminates the hassle of each party getting their own liability insurance, which could lead to gaps or insufficient limits.

Instead, wrap-up insurance ensures all liability risks are adequately addressed. For instance, if I consider an owner-controlled program bought by the owner for the builder, it can include add-ons like workers' compensation, general liability, excess liability, pollution liability, professional liability, builder's risk, and railroad protective liability. Yes, the cost can be high, but you can divide it among the general contractors and subcontractors.

Types of Wrap-Up Insurance Coverage

Wrap-up insurance covers various risks for you, your project, and your workers, though policies can differ. Let me walk you through the common ones.

General Liability with a Broad Form Endorsement

This type covers all liabilities related to the project, including bodily injury to third parties from site incidents or work activities by contractors, subcontractors, or owners. It also protects against damage to third-party property caused by anyone under the policy.

Builders Risk

Builders risk insurance handles damages from water, weather, or fire to buildings under construction. Essentially, it's like property insurance but specifically for structures in progress.

Umbrella Liability

Umbrella liability extends coverage beyond the limits of your general liability policy. For example, if your general policy covers up to $2 million and the umbrella adds $10 million, an $8 million claim would have the first $2 million covered by general liability and the rest by umbrella.

Workers' Compensation

This provides workers' compensation coverage for all enrolled contractors and subcontractors on the project.

Commercial Vehicle

Commercial vehicle insurance covers vehicles like cars, vans, trucks, or specialty ones used on the project against liability claims and property damage.

Property Damage

This covers property damage for all parties named in the policy. You can add equipment floaters for specialized tools and inland marine insurance for items transported to and from the site.

Important Note on Exclusions

Be aware that wrap-up insurance policies may have specific exclusions, meaning any of the coverages I mentioned could be explicitly disallowed.

How to Secure Wrap-Up Insurance Coverage

Securing wrap-up insurance requires following specific steps in order. First, your development team must assess the project's scope, size, and duration to see if it's suitable. Consider the project type, costs, timeline, and risks.

Next, hold pre-bid meetings with prospective contractors, subcontractors, and insurance providers to discuss the project and potential wrap-up inclusion. This sets expectations early and identifies limitations.

The project owner typically decides on the program based on expert advice and selects an insurance provider considering qualifications, reputation, financial stability, coverage scope, and cost.

You can negotiate terms, but remember that underwritten calculations are usually approved by the issuer. Pay attention to coverage limits, duration, included coverages, deductibles, exclusions, and endorsements.

Once secured, inform all contractors and subcontractors about the coverage, their roles, and responsibilities. Set up processes for claims reporting, documentation, oversight, and compliance.

Fast Fact

When the project ends, your wrap-up coverage will transition to operational coverage, likely shifting to individual, as-needed policies.

Limitations of Wrap-Up Insurance

Wrap-up insurance isn't without its drawbacks. These policies are complex and demand careful planning and coordination among owners, contractors, subcontractors, and insurers, which can make securing and managing coverage challenging.

Due to the scale of projects, costs can be high, including premiums, deductibles, administrative fees, and other expenses that your budget must accommodate, especially with long-term uncertainties.

Coverage is often limited to specific projects or phases and might not include risks like professional liability, design errors, or pollution, so you may need additional policies to fill those gaps.

Policies frequently have exclusions, limitations, and conditions that restrict certain claims or losses—for example, restrictions set by entities like New York's Office of General Counsel for public projects.

Finally, availability and affordability depend on project location and nature; insurers may have requirements, and high-risk projects could make it prohibitively expensive or unfeasible.

What Is the Difference Between an OCIP and Wrap-Up Insurance?

OCIP, or Owner Controlled Insurance Program, and wrap-up insurance are both used in construction, but the key difference is control: the owner purchases and manages OCIP, while the general contractor or sponsor handles wrap-up. Coverage and parties involved can vary accordingly.

What Is the Primary Benefit of Wrap-Up Insurance Coverage?

The main advantage is consolidating coverage for all contractors and subcontractors under one policy, which streamlines processes, cuts administrative burdens, and can save costs for everyone involved.

What Is a Wrap-Up Exclusion?

A wrap-up exclusion specifies risks or coverages explicitly left out of the policy, meaning you'll need separate arrangements or endorsements for those excluded items.

The Bottom Line

In summary, wrap-up insurance is a comprehensive policy for construction projects that covers all contractors and subcontractors under one umbrella. It simplifies insurance management, reduces costs, and typically includes general liability, workers' compensation, and excess liability for the project's duration.