Construction Wrap-Up Insurance

Mary Thompson, Capstone Brokerage President, July 21, 2017

Construction Wrap-Up Insurance is a liability policy that serves as all-encompassing insurance which protects all contractors and subcontractors working on a construction project. It is intended for large projects that will be over $10 million in cost. There are different options, the main two are Owner Controlled Insurance Programs (OCIP) or Contractor Controlled Insurance Programs (CCIP), both have their own benefits and essentially will cover the same things. Lets explore the differences and reasons why some projects choose to have one or the other in place.

Owner Controlled Insurance Programs

OCIP or Owner Controlled Insurance Programs, often referred to as Wrap-Up Insurance, is essentially a means of managing the risk factors and costs for large construction projects or series of related projects. Rather than each individual contractor and subcontractor providing their own General Liability, Workers Compensation and Excess Liability, the project owner would provide one specific insurance policy that covers the entire project for these areas – a ‘wrap-up’ of everyone’s exposure on the project into one neat bundle.

OCIP Advantages and Variations

The general advantages for the purchase of an Owner Controlled Insurance Program are a savings in insurance premiums for all participants and a wider umbrella of coverage. These provide less risk of gaps in coverage and the ability to access higher limits of coverage than some individual contractors normally carry.

A property owner can elect to be responsible for the procurement of the insurance or the owner can leave it up to the contractor to handle. Which situation is better? There are compelling reasons for both.

Contractors Controlled Insurance Program’s

The contracting community has made a very compelling case to property owners that they (the contractors) are simply in a better position to control the procurement process. This is because they are contractually controlling the subcontracting process therefore having the final cost of the wrap-up insurance program compared to the final collected insurance deductions. The contractor is in a wonderful contractual position to control this process. By having a knowledge of contract with the trades, contractors are in the best position to negotiate the highest level of deductions. Most wrap-up insurance programs are loss sensitive, meaning the sponsor is responsible for the deductible losses. In this case safety becomes priority number one for them naturally decreasing the likely-hood of claims, issues and of course safety concerns. Although still contractually obligated to provide a safe site—wrap-up or no wrap-up—the contractors may be the best able to control the claims through a safe work environment.

Owner Controlled Insurance Programs

The property owner can choose to hold the insurance policy during construction or renovation of a property. This policy would be designed to cover virtually all liability and loss arising from the entire construction project. Under one master policy, the OCIP would cover commercial General Liability, and Workers Compensation insurance for all involved in the project, including the general contractor, subcontractors, etc. One thing the OCIP would not cover is vendors or suppliers. This would include the material distributor, and quite possibly hazardous waste disposal. One of the biggest advantages of OCIP is that there is uniform coverage for all involved in the job. There is an ease as well for the property owner that all contractors and subcontractors are adequately covered. Lastly it will allow the property owner to consolidate insurance polices and package them which could help with premium cost.

In addition to Owner Controlled Insurance Programs, other variations of Controlled Insurance Programs such as Contractor CIP’s and Sponsor CIP’s. Determining which wrap-up coverage is best is often situational. As always insurance needs are unique and should be discussed with a knowledgeable broker to determine the best fit of insurance coverage on a job by job basis. Both CCIP and OCIP programs are effective and used often in the construction industry, neither is perfect for every situation and an in-depth assessment should be taken into consideration when choosing which policy would best suit the projects needs.