Wrap-up insurance is commonplace on large, complex construction projects.  There are two types of wrap-up insurance programs routinely utilized: (1) Owner’s Controlled Insurance Program (“OCIP”) or (2) Contractor’s Controlled Insurance Program (“CCIP”).  Under either wrap-up program, the objective is that most (if not all) of the construction participants (such as the contractor and subcontractors) are wrapped-up or covered under one insurance coverage program.   

When a construction project has wrap-up insurance, whether OCIP or CCIP, there will be an insurance manual that will explain certain aspects to the construction participants such as (a) what type of insurance is included in the wrap-up program, (b) how premiums are to be determined for the wrap-up program including the required close-out audit, (c) who is responsible for any deductibles for claims, (d) the type of insurance the participant still needs to procure and/or the type of insurance not covered under the program (and, if not in the manual, it should be outlined in the contract), and (e) how to submit and handle claims under the wrap-up program.  The manual will also identify the administrator of the wrap-up program. 

In my experience, wrap-up coverage includes builder’s risk coverage, worker’s compensation coverage, commercial general liability (CGL) coverage, and umbrella coverage.  Insurance not routinely included in a wrap-up program is pollution liability, errors & omissions / professional liability, automobile liability, equipment coverage such as boiler and machinery insurance, and coverage for a contractor’s off-site operations.   This will be applicable insurance the contractor and subcontractors will still need to procure as may be required by the wrap-up program or underlying contracts.

The advantage of a wrap-up program is ideally to streamline risk management issues including additional insured status, (higher) limits of liability and excess (umbrella) liability coverage, products completed operations (applicable to CGL coverage so that products completed operations ideally runs through the applicable statute of repose for construction defects), waiver of subrogation concerns, and the claims process since major construction participants will be covered under the same global insurance policies (as opposed to many different carriers).  Another advantage is that there ideally is a cost benefit since the program should reduce overall insurance costs by all of the enrolled participants which corresponds to a reduction in overall construction costs.

There are, however, perceived disadvantages to wrap-up programs too.  There is an administrative burden in having to deal with these programs which is why there is often a third party administrator engaged to handle the administrative process associated with ensuring that major construction participants are properly enrolled in the program, insurance costs that are routinely included in bids / proposals are backed-out to avoid duplication in insurance costs, claims are properly and timely handled, and enrolled participants are audited during the close-out of their contracts to determine their final, allocated premium.  Also, as mentioned above, the wrap-up program does not relieve the enrolled participant from obtaining other required insurance coverage not included in the program but required of the participant through the wrap-up program’s manual or contract. And, there is the concern that even if there is an insurable construction defect claim, the claim is still going to flow downstream irrespective of the fact that there is a wrap-up program designed to cover that type of claim. (For example, with OCIP, there is concern that such a claim will be formally asserted against the contractor and then subcontractors instead of perhaps tendering the claim to the OCIP administrator so that the carrier can make a determination as to the claim since the contractor and subcontractors would have the same insurance through OCIP. Thus, any duty to defend obligation would be owed to all from the same OCIP carrier which will hopefully reduce protracted litigation.)  See, e.g., Southeast Wisconsin Professional Baseball Park District v. Mitsubishi Heavy Industries America, Inc., 304 Wis.2d 637 (Wis. Ct. App. 2007) (finding that in a multi-party litigation regarding deficiencies with a retractable roof, the OCIP carrier owed duty to defend obligation to all of the parties).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.