Wrap-up insurance programs are being used more and more on large commercial, residential and public construction projects.
A wrap-up policy is a liability insurance program that combines the elements of several major risk types into one policy and covers multiple entities such as contractors and sub-contractors. The program sponsor, owner or contractor can realize some definite advantages using a wrap-up over a conventional insurance program. The most significant advantages include: potential insurance cost savings, broader coverage, higher limits, better claim management, and more effective safety and loss control.
“As in all aspects in the construction industry, planning is a critical component of a successful wrap-up insurance program,” says Sandi Sikora, vice president and director of the Real Estate Division at DLD Insurance Brokers Inc., in Irvine. “Any owner or contractor evaluating the feasibility of implementing a wrap-up should seek help and guidance from a competent insurance and risk management professional.”
Smart Business asked Sikora for more information about wrap-ups.
Why would a wrap-up be beneficial to me?
There are many reasons that an owner or general contractor would decide to go into a wrap-up. One of the main issue is when the sub-contractors are unable to meet the requirements needed for the exposures at risk. This usually comes about when their insurance program does not extend to the type of project being undertaken, such as condominium construction. By purchasing a wrap-up, the owner, general contractor (GC) and subcontractors are all named insureds on a policy that is dedicated to the project. The owner or GC does not have to worry if appropriate insurance coverage has been put into place.
Are all subcontractors covered under the wrap-up?
No. A wrap-up generally excludes drafting/design work, hazardous waste removal and/or transport, extermination/pest control, vendors, suppliers, fabricators, material dealers, drivers and others who merely transport, pick up, deliver or carry materials, personnel, parts or equipment or any other items or persons to or from the project site.
Can I use the same Master Subcontractor Agreement for the subs that are included on the wrap-up?
No. You will need to amend the Indemnity Agreement since the subcontractor will now be a part of the named insured. There also will need to be a section that spells out what responsibility each subcontractor has relative to its deductible participation in the event of a loss.
Will certificates of insurance still be needed for the subcontractors that are included in the wrap-up?
Yes. You will still need to show evidence that the subcontractor has workers’ compensation and automobile liability.
Are the subcontractors automatically added to the wrap-up?
No. Many companies require that each covered subcontractor be enrolled in the program. To accomplish this, they will require that the purchaser of the wrap-up hire an approved wrap-up administrator to handle the initial subcontractor meeting and enrollment process. They will also advise as to how the Master Subcontractor Agreement is to be amended. It is important that when you are evaluating the various quotes you clearly understand what each insurance company is mandating in regard to this process.
Does this administrative service result in additional premiums over the cost of the policies?
Yes. Cost can run anywhere from $10,000 to $25,000, depending on what services you want the administrator to handle.
Can there be other costs besides administration?
Yes. Many insurance companies will also require that you contract with an approved third-party peer review for all aspects of the construction process. This could run $350 to $550 a unit, depending on what level of service is required. In addition to this, many insurance companies are now mandating that the purchaser of the wrap-up retain the services of a third-party administrator for all claims within the self-insured retention.
Are my liabilities over once the wrap-up is completed?
No. Even though the wrap-up placement might have an extension for completed operations, you still will have premises exposure for warranty/repair work that is undertaken after the policy expiration. When you negotiate the initial wrap-up placement, you should ascertain whether the insurance company could extend coverage for a designated time period on warranty/repair work. If it will not, then it is important to factor in the possibility of additional expense to purchase a separate placement at expiration that will provide the coverage needed.
SANDI SIKORA is vice president and director of the Real Estate Division at DLD Insurance Brokers, Inc. in Irvine. Reach her at (949) 553-5666 or firstname.lastname@example.org.