Wrap-Up Insurance: Definition, 2 Main Types, and Coverage Example
Wrap-up insurance is an all-inclusive liability policy that protects all contractors and subcontractors working on significant projects costing more than $10 million. Owner-controlled and contractor-controlled wrap-up insurance are the two types.
The owner of a project arranges for owner-controlled insurance to cover all specified contractors for the benefit of the builder or contractor. Meanwhile, the general contractor may employ a contractor-controlled insurance policy to provide coverage to all contractors and subcontractors on the project.
Understanding Wrap-Up Insurance
A wrap-up insurance policy's purpose is to provide peace of mind that everyone involved in a project is adequately insured. Wrap-up insurance provides broad blanket coverage for the owner, contractors, and subcontractors. Wrap-up insurance is useful since it eliminates the requirement for each contractor and subcontractor to obtain their own liability insurance. If there were many policies, there might be coverage gaps or insufficient limits. Wrap-up insurance, on the other hand, is more successful at ensuring that all liability risks are appropriately covered.
Consider an owner-controlled insurance coverage purchased on behalf of the builder or contractor by the owner. Workers compensation, general liability, excess liability, pollution liability, professional liability, builder's risk, and railroad protective liability are all available as add-ons. While wrap-up insurance might be costly, the expense can be shared by general contractors and subcontractors.
Types of Wrap-Up Insurance Coverage
Wrap insurance protects you, your project, and your employees from a variety of dangers. Policies may differ, but they may include:
General Liability with a Broad Form Endorsement
This covers all project liabilities, including bodily injury coverage against third-party injuries on the job site or as a result of work-related activity by the contractor, subcontractor, or owner. Furthermore, it protects third-party property from damage caused by anyone insured by the policy.
Builders RiskÂ
Builders risk insurance protects a structure under construction from water, weather, and fire damage. In other words, builders' risk is similar to property insurance, except that it covers buildings that are under development.
Umbrella LiabilityÂ
Umbrella insurance extends coverage beyond the limits of a standard liability policy. Assume a general liability policy covers up to $2 million in damages and an umbrella liability policy covers up to $10 million. If there was a $8 million dollar claim, the regular insurance would cover the first $2 million, while the umbrella policy would cover the remaining $6 million.
Workers' Compensation
Workers' compensation gives workers' compensation insurance coverage to all enrolled contractors or subcontractors on the project.
Commercial Vehicle
Commercial vehicle insurance protects vehicles used on construction sites, such as automobiles, vans, trucks, and specialty vehicles, from liability claims and property damage.
Property Damage
This protects the property of all parties mentioned in your policy. Additionally, equipment floaters for specialist equipment and tools, as well as inland marine insurance for tools and equipment carried to and from the job site, can be added.
How to Secure Wrap-Up Insurance Coverage
There are often specified measures that must be done in a precise order in order to acquire wrap-up insurance coverage. To begin, the development team must assess the scope, size, and length of the project to determine whether wrap-up insurance is necessary. Consider the project's type, expected costs, completion timeline, and any relevant dangers.
Hold pre-bid meetings with prospective contractors, subcontractors, and insurance providers to discuss the project and the potential inclusion of a wrap-up insurance program. This allows stakeholders to immediately know what to expect and what is required of them. This will also identify constraints early in the construction schedule process.
The project owner frequently decides whether or not to pursue a wrap-up insurance program based on the advice and appraisal provided by insurance professionals. The project owner is responsible for selecting an insurance provider or underwriter. The provider's qualifications, standing, financial stability, breadth of coverage, and pricing are all considered.
Wrap-up insurance terms and conditions can be negotiated, but keep in mind that underwritten calculations are frequently validated and accepted by the issuing firm. You must also be aware of specific conditions such as coverage limits, policy length, specific coverages offered, deductibles, exclusions, and any additional endorsements required.
Following the purchase of the wrap-up insurance policy, notify all contractors and subcontractors involved in the project of the coverage. Ascertain that they understand the policy's duties, obligations, and responsibilities. Establish protocols with each impacted party for reporting, documenting, and addressing claims, as well as continuing oversight and policy compliance.
Limitations of Wrap-Up Insurance
There are several limitations to wrap-up insurance. Wrap-up insurance policies are complex and necessitate careful preparation and coordination. They require participation from the project owner, general contractors, subcontractors, and insurance companies; hence, coverage necessitates significant collaboration because it can be difficult to organize coverage, secure appropriate restrictions, and manage the many parties.
Wrap-up insurance can be costly due to the scale and high value of the projects it covers. Premiums, deductibles, and other costs associated with getting and administering insurance, as well as any administrative fees, may be significant. Because of the complexity and uncertainty associated with long-term initiatives, the project budget may need to account for these additional costs.
Wrap-up insurance usually protects certain projects or construction phases, but it may not cover all aspects of a project. Some risks, such as professional liability, design defects, or pollution liabilities, may not be covered by a wrap-up policy. Project managers must be aware of any gaps that may necessitate additional insurance coverage.
On a related point, even in the areas they do cover, wrap-up insurance contracts usually include a number of exclusions, limits, and conditions. For example, policies may limit coverage for specific sorts of claims or losses. For example, New York's Office of General Counsel has imposed restrictions on wrap-up insurance for public development projects.
Finally, depending on the location and nature of the project, wrap-up insurance may not always be easily accessible or competitively priced. Before offering insurance, insurance companies may have special requirements or constraints. Furthermore, the inherent risk of a certain build may be so high that it is either prohibitively expensive or operationally impossible for any third-party insurer to accept to take on the risk.
The Bottom Line
Wrap-up insurance is a general insurance coverage that is used in building projects. Under a single insurance, it covers all contractors and subcontractors involved in the project. It streamlines the insurance procedure, minimizes administrative costs, and has the potential to save money. For the duration of the project, the policy should contain general liability, workers' compensation, and excess liability coverage.