Wrap-Up Insurance policies have been available on large construction projects for many years and provide a single project specific policy to cover the owner, general contractor and subcontractors as named insureds for liabilities that arise out of construction at the project. Typically, Wrap policies offer reduced premiums for the single project policy that consolidates general liability, workers’ compensation and excess/umbrella coverages for those working on the project. The most common form of Wrap policy is the Owner-Controlled Insurance Program (OCIP).
OCIP policies offer advantages over individual contractor policies by generally providing greater limits of coverage for project specific concerns and allow for streamlined claims processing and defense of claims if matters proceed to litigation. Also, risks of litigation are lessened as the entities performing the construction work are all covered by the same policy. OCIP policies can also afford coverage to contractors for construction of multi-unit projects (condominium and townhome) that may be excluded from the contractor’s standard commercial general liability (CGL) policies.
When considering enrolling in a project’s OCIP program, it is very important for the contractor have the proposed OCIP insurance policy reviewed to determine its critical features that may impact coverage on the contractor. On residential projects, entities that provide a OCIP policy for a project are required to disclose, among other things, the policy limits, scope of coverage, policy term, the basis upon which a deductible or occurrence is triggered and an estimate of the remaining policy limits which will allow the contractor to assess the benefits and risks of enrolling in a project OCIP.
Wrap Policy Concerns
Wrap policy deductibles are typically the responsibility of the sponsor of the plan, usually the owner. Satisfaction of the deductible is a condition to coverage under the policy. The construction contract or subcontract typically requires the enrolled contractor to pay a portion of the deductible and defines how the deductible is to be paid and its amount before there is coverage for a claim. It is critical to understand policy deductible terms and who is responsible for their payment.
It is also important to make sure the Wrap policy limits are sufficient for the potential risks associated with the construction project. These limits also include the excess/umbrella coverage over the primary Wrap policy that is typically triggered only after the primary Wrap policy is exhausted.
Wrap policies must also be closely reviewed to determine whether it is a “burning limits” policy wherein the costs of defense of a claim are deducted from the limits of liability for the policy. Multiple claims on a policy with burning limits can exhaust the policy leaving a contractor without coverage for a claim on an OCIP project.
In addition, most contractor CGL policies exclude coverage for projects where the contractor is an insured under the Wrap policy leaving the potential for uncovered claims in the event of Wrap policy exhaustion or a denial of a claim. It is important to analyze whether enrolling in the Wrap policy makes sense for the contractor or whether an endorsement to the contractors CGL policy should be sought affording specific coverage for a project that offers a Wrap policy.
Obtaining information about the proposed Wrap policy is important to allow the contractor to obtain critical information about the policy to make an informed decision whether to enroll in the Wrap program. It is critical for the Wrap policy to be reviewed by an attorney to ensure that policy limits, deductibles and coverages are understood and explained to avoid potential lack of coverage scenarios and gaps in insurance and whether it makes sense to enroll in a project OCIP.
The information contained in this Newsletter has been prepared by Lanak & Hanna, P.C. for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice.