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Trump Tower in Chicago, Miller Park in Milwaukee and the New Jersey Turnpike are all different types of construction projects that have benefited from a wrap-up insurance program. Wrap-ups can positively impact a construction project’s risk management program, future project decisions and even its bottom line. 

By Google definition, wrap-ups serve as an all-encompassing, centrally procured insurance and risk control program that protects the owner, contractors and subcontractors working on projects. Oftentimes, wrap-ups are associated with massive construction projects in excess of hundreds of millions of dollars. However, wrap-ups can provide excellent risk financing solutions to any project sponsor, regardless of size, and afford all participants the benefits of a truly integrated risk management platform. 

There are two main types of wrap-ups: 

  • owner controlled (OCIP); and 
  • contractor controlled (CCIP). 

In an OCIP, the owner procures the program as a sponsor wherein the general contractor/construction manager and all subcontractors are named insureds under a single program that covers a single construction project or, in some cases, multiple projects.

On the other side is the CCIP. As the name implies, the general contractor is the sponsor and the owner/developer and contractors of all tiers are named insureds.

For projects in excess of $100 million dollars, and in some instances even more, a "wrap-up" often includes General Liability insurance and Workers’ Compensation insurance for all onsite contractors into one consolidated plan. To maximize the sponsor’s risk financing and risk control goals, it is critically important that strong safety and claims management programs are in place, which allows the sponsor to use economies of scale to secure lower insurance costs, which in turn can reduce construction costs.

Why would a sponsor want a wraP-up?

Benefits of wrap-up for a sponsor include:

  • isolates construction risk to a project-specific program;
  • offers dedicated limits, coverages and insurers;
  • provides known completed operations coverage and terms;
  • keeps contractors compliant with onsite insurance requirements;
  • reduces litigation with one coverage counsel;
  • centralizes safety and claims management;
  • provides project-term pricing protection;
  • provides broader scope of coverage and higher limits; and
  • eliminates concerns over improperly insured contractors.

What risks can be eliminated when taking on a wrap-up?

Traditional insurance programs can expose the sponsor to claims through:

  • partial or contributory negligence;
  • inadequate contractor insurance;
  • coverage exclusions;
  • improper additional insured endorsements;
  • contractor/insurer insolvency;
  • discontinuation of coverage;
  • reservation of rights;
  • horizontal exhaustion; and/or
  • potential lack of post-construction insurance protection.

When a sponsor implements a wrap-up, however, these exposures are greatly reduced or eliminated.

What are the misconceptions?

Wrap-ups don’t have to be used exclusively for mega million-dollar projects. For instance,a liability-only wrap-up is a product that forward-thinking owners or contractors are using to minimize risk. The liability-only wrap-up provides the sponsor (owner or general) security because they do not need to worry about proper additional insured forms, primary and non-contributory wording or exclusionary wording in a contractor’s or subcontractor’s policy; thus, the concern that a contractor’s insurance carrier will deny a properly tendered claim downstream is eliminated.  

Creative sponsors are using these programs to insulate their traditional insurance programs from troublesome claims in difficult states (e.g. an Illinois general contractor undertaking a single project in Arizona). The programs are written to include extended completed operations for the duration of a state’s statute of repose or limitation, which is usually more than 10 years. In this case, the sponsor knows its risk, minimizes it through the wrap-up and maximizes its future risk-management needs by crafting a solution to handle claims that may arise long after the project is completed. 

There is a misconception that wrap-ups provide substantial savings and, while these programs can provide some savings, it is usually 3-4% of project costs (on the high side). Be wary of consultants or brokers promising a large pot of gold at the end of the rainbow.  

One other misconception is the administrative burden of a wrap-up. A properly structured wrap-up will have a broker who has experience administering the program and enrollment, or a broker who provides high-level management and monitoring while outsourcing enrollment. In either case, the administrative burden for the sponsor is a non-issue.

What are the keys to a successful wrap-up?

Administration is the first key to a successful wrap-up. Hire the right firm—broker or third party—to handle the enrollment process. This will provide a more streamlined system and alleviate the burden from the team. Another important factor is reviewing the contract language. Do not try to amend a standard contract with wrap-up wording. Work with competent counsel who understands not only construction risks, but wrap-ups as well. Too many times, a contract, which the courts turn to, is in conflict with the wrap-up policies.

Safety is another critical factor. Safety needs to be part of both the contract and procedural manual, and orientation meetings must be mandatory for all those involved in the project. When claims occur, all contractors should know how to make a report and to whom. Regular claim reviews (a process that forward-thinking sponsors will ensure includes the affected contractor) should also be established in order to maintain cost-effectiveness for insurance. Remember, wrap-ups are an inclusionary concept, so those involved in the claim should also be included in the review and action plans.

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