Of all the challenges you face as a project owner or contractor on large construction projects, your New York construction insurance is likely one of your biggest and costliest headaches. With multiple subcontractors, suppliers, and insurance companies involved, you can find yourself dealing with unexpected coverage gaps, lapsed policies, or inadequate limits. And when a claim comes up, things can get complicated and expensive in a hurry.
In an effort to gain more control over their insurance coverage, owners and contractors are increasingly looking to Consolidated Insurance Programs, otherwise known as “wrap-ups” as a solution. A wrap-up consolidates the workers' compensation, excess/umbrella, general liability, and other insurance coverage for all or most of the entities involved in a project into a single policy with a single insurer. This allows the project owner to spread the risk among all parties while providing a single insurance safety net for everyone involved in the project.
Is wrap-up coverage right for your project?
That depends. For starters, wrap-ups are most effective for projects with values larger than $100 million or for projects generating at least $1 million in workers’ compensation premiums. And there are definitely benefits for owners and contractors:
- Comprehensive insurance coverage at a lower cost than separate policies for each entity
- Control over insurance coverage and limits of liability
- Elimination of redundancies
- Reduced litigation and improved conflict resolution
- Better risk management and comprehensive loss control
- Higher safety standards
But wrap-ups have potential disadvantages you need to be aware of too:
- Available coverage vs. indemnity clauses. Indemnification clauses in construction contracts – either between the owner and the general contractor or between the general contractor and subcontractors – are often broader than the coverage provided under the wrap-up program. A contractor or subcontractor could discover that its contractual indemnity obligations make it liable for losses not included in the wrap-up liability coverage, such as pollution liability, professional errors or omissions associated with design, or employment practices.
- Vulnerability to consequential losses. Contractors and subcontractors need to consider whether their contracts make them liable for business interruption or other consequential losses the wrap-up program sponsor may be exposed to.
- Inefficiencies. If the wrap-up program isn’t embraced by all parties and run efficiently, contractors can quickly be subjected to administrative burdens and hidden costs that can exceed their profits from the job.
- Exclusions. In some wrap-up programs, certain contractors and subcontractors may be excluded due to the nature of their work, small contract value, or short duration of work on site.
- Unfavorable view of wrap-ups by subcontractors. Many subcontractors worry about receiving credits from their insurance provider when they’re insured under a wrap-up. Some also feel that loss experience negatively affects their bidding more in a wrap than with traditional insurance coverage.
The good news? Every one of these potential roadblocks can be overcome by diligently communicating with all parties, and by working closely with a New York construction insurance expert.
At BNC Insurance and Risk Advisors, we have more than 150 years of combined experience in the New York construction market. So when you’re ready to explore your insurance options for your next big construction project, let us guide you through the process and design an insurance program that will help you protect your job site, your reputation, and your bottom line. Want to learn more? Contact us for a construction insurance quote or download our construction case study collection.
