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What is Construction Wrap-Up Insurance?
True to its name, Wrap-Up Insurance serves as an all-encompassing insurance policy for large construction projects that require many contractors and subcontractors. Wrap-Up Insurance, as its name implies, “wraps up” various insurance coverages necessary for a large-scale construction project. While policies may vary and depend on the specific project, generally, Wrap-Up Insurance includes coverage for employer’s liability, general liability, and workers’ compensation.
In a typical construction project, contractors and subcontractors often supply their own insurance, as required by the project owner. Consequently, with large projects that include many contractors and subcontractors, a multitude of policies and insurers becomes involved, making it difficult to ensure that everyone has done their part to purchase complete and sufficient coverage.Wrap-Up Insurance is the go-to form of coverage to make certain that all aspects of a large project are properly insured and safeguarded.
As a business owner, you may want to consider purchasing a Wrap-Up Insurance policy if:
- You are finding deficits in the insurance coverage of your contractors and subcontractor
- You want more control over the multiple components of coverage in your large-scale construction project
- You want to cut out potential markups on insurance included in a contractor or subcontractor’s bid
What types of projects qualify for Wrap-Up Insurance?
Because of the nature of Wrap-Up Insurance, companies often leverage Wrap-Up Insurance for only very large-scale construction projects. The large scope and size of a project is what makes Wrap-Up Insurance work and what makes it more economical and efficient than relying on the insurance of subcontractors.
Typically, insurance companies will offer Wrap-Up Insurance for construction projects that contain a minimum of $10 million in hard construction costs. This number can also be influenced by a number of different factors, including the project location and type of wrap-up. For example, the minimum hard construction costs for a single-site construction project in New York may have to be over $250 million in order for most insurance companies to offer a Wrap-Up policy. However, in other cases, this amount could be as low as $5 million.
Some large-scale construction projects that may be considered for Wrap-Ups include:
- New hospital construction
- University construction
- Commercial building construction
- Multi-tenant apartment building construction
- Condominium community development
- Recreational facility development
- Construction, renovation, or reconstruction of large municipal buildings
- Restoration of historical buildings and architecture
- A string of smaller projects that total a large construction budget when added together
What are the benefits of Wrap-Up Insurance?
Boiled down, Wrap-Up Insurance is great for two things: cost and control.
One obvious benefit of Wrap-Up Insurance is decreasing the costs of a number of different insurance policies through subcontractors. Generally, subcontractors estimate their insurance cost into their overall quote. Often times, there will be a small markup on these insurance prices. Additionally, as a project owner, you may also need to purchase contingency coverage in order to supplement any limitations of your subcontractors’ insurance policies. All of these separate insurance policies can add up.
Wrap-Up Insurance offers an alternative by lumping all the disparate portions of the project into one all-encompassing policy, thus mitigating much of the markup and/or supplemental insurance that a project owner may have to purchase. Additionally, by consolidating coverage into one policy from one single insurer, your insurer will typically be able to offer volume discounts, thus cutting your costs even further.
Another great benefit of Wrap-Up Insurance is the control that you can exert over the coverage and limits of your construction project. When you choose to rely on a contractor’s or subcontractor’s insurance, you forfeit a significant portion of control over their coverage. However, with Wrap-Up Insurance, you will be able to determine all aspects of the policy across contractors and subcontractors, from the limits to the types of coverage.
Additionally, Wrap-Up Insurance provides a more efficient claims and dispute process, as claims will be processed through a single insurer, and any disputes between insureds will not involve multiple insurance companies.
What does Wrap-Up Insurance cover?
Wrap-Up Insurance is meant to make life easier by bundling a number of coverages into one program or policy. Coverage is typically tailored to the specific project, but may include:
- General Liability: Covers third-party property damage and bodily injury .
- Workers Compensation: Covers workers, contractors, and subcontractors who suffer a work-related injury or illness.
- Umbrella Policy: Covers additional costs up to a certain amount, beyond your coverage limit.
- Builder’s Risk: Covers buildings and materials while under construction. Some perils that may be covered by this portion of the policy include:
- Theft and vandalism
- Property Damage: Covers damage to buildings, contents, and the property of others in your care.
- Commercial Vehicle: Covers liability and property for trucks, vans, and any specialized vehicles necessary for work on the project.
If I buy Wrap-Up Insurance, does that mean my subcontractors don’t need to buy their own insurance?
In general, your subcontractors will not need to purchase separate insurance if that coverage is already included in the Wrap-Up Insurance policy you purchase. Wrap-Up Insurance is intended to consolidate coverage so that as an owner or general contractor, you can ensure that your contractors and subs are fully covered for the project.
There are some exclusions, however, to Wrap-Up Insurance, meaning subcontractors may need to purchase additional coverage, depending on the project. Later on in this article, we talk about common exclusions in Wrap-Up Insurance.
What types of Wrap-Up Insurance are there?
The main two types of Wrap-Up Insurance are Owner Controlled Insurance Program (OCIP) or Contractor Controlled Insurance Program (CCIP).
Owner Controlled Insurance Program (OCIP)
An OCIP is a Wrap-Up Insurance policy that is controlled and sponsored by the project owner. OCIPs are typically what people are referring to when they think of Wrap-Up Insurance. In an OCIP, the project owner would own the insurance policy for the entire construction project; everything from general liability to workers’ compensation for all contractors and subcontractors involved in the project.
Contractor Controlled Insurance Program (CCIP)
CCIPs are Wrap-Up Insurance programs that are controlled and sponsored by the general contractor hired for the construction project. One of the main benefits of having a CCIP is that a general contractor may be better experienced and versed in construction projects, versus a project owner, and thereby places him in a better position to purchase insurance.
Both OCIPs and CCIPs offer similar coverage for large scale construction projects. The primary difference is the controller of the policy. In the case of an OCIP, it is the project owner. In the case of a CCIP, it is the general contractor. In both situations, the controller of the insurance policy is responsible for procuring the insurance and assessing the needs of the construction project. The party that sponsors the Wrap-Up Insurance is also responsible for paying and administering the program.
What are the key exclusions of Wrap-Up Insurance?
Liability that occurs away from the project site is generally excluded from Wrap-Up Insurance policies. Subcontractors, vendors, and suppliers who fabricate, manufacture, or assemble project materials off-site may be excluded. Goods in transit are also commonly excluded.
Examples of vendors and suppliers that could potentially not be covered include:
- Hazardous waste disposal services
- Material distributors
- Waste disposal services
- Furniture distributors
Any large-scale construction project involves a lot of thought, planning, and execution. Whenever you involve many parties within one project, there is an increased likelihood of things occurring out of your control. Taking preventative measures to insure your construction project is of the utmost importance, as a business owner and project manager.
Wrap-Up Insurance can be a great way to easily bundle all components of the construction project into one manageable solution. Under Wrap-Up Insurance, project owners, contractors, and subcontractors can all have peace of mind in carrying out their responsibilities of the construction project. Additionally, Wrap-Up Insurance can also offer reduced costs, increased control, and less administrative hassle than managing multiple insurance policies through your contractors and subcontractors. It is also a great way to ensure that your team is on the same page and aligned with the goals and objectives you have for your project.