Coverage Gaps and Contract Traps
Owner Controlled Insurance Programs, Contractor Controlled Insurance Programs AKA Wraps
By Patrick Barnes
Special Liability Insurance Programs
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Wraps provide general liability insurance coverages for all eligible subcontractors under a single policy for specific projects and locations. These are known as Consolidated (Or Controlled) Insurance Programs "CIP" or Owner Controlled Insurance Programs "OCIP". The Owner Controlled Insurance Programs (OCIP) and COntractor Controlled Insurance Programs (CCIP) maintains the insurance coverage for a specific job and location, or "Rolling Wrap" for multiple jobs and locations. Wraps have been used on very large commercial, industrial, and municipal projects for some time. Recently, they are being used for residential construction projects because it has become harder for subcontractors to get coverage for residential condominium and tract housing.
Wraps are not standardized insurance forms and coverage can be better in some aspects and worse in other areas. There are many potential dangers because of gaps and exposures.
For example, coverage not included and other areas of concern:
- Errors and omissions for design or professional liability no covered.
- Off site exposure for fabrication not covered unless you have endorsed on to the wrap a location that you will be doing fabrication just for this wrap project.
- Some wraps only provide 3 years, or 5 year completed operation coverage - instead of the statutory 10 years for construction defect after the project is finished for all the subcontractors that are enrolled on the wrap. You will not have coverage if the loss happens after the completed operations coverage has expired on the wrap policy.
- Most general liability insurance carriers have a "Wrap exclusion" in the subcontractor's primary General Liability policy.
- This exclusion is "good" because you don't pay premium for "wrap" projects twice. The wrap will want an insurance credit on your bid and if your standard general liability policy does not have a wrap exclusion they will collect premium also for the wrap project.
- This wrap exclusion excludes all claims that arise on the wrap project. If you preformed the fabrication at your shop and then installed it at the wrap job site and a loss occurred and it is determined that the fabrication was the problem, you would not have coverage on the wrap policy and you would not have coverage on your standard insurance policy. A big gap in your coverage.
- Also, in your contract for the wrap, they will require you to sign a waver of rights of recovery. This is to protect them from legal action by you, because of the deductible of self-insured retention clauses, inadequacy of limits of any of the wrap policies, insolvency of the insurer, limitations or exclusions of coverage against the Contractor, Owner, and their representatives, agent, officers, directors, employees, partners, shareholders, members, and assigns, and any other subcontractor in the wrap.
- The limits of liability on the wrap policy are for all enrolled contractors covered by the wrap. Are the limits high enough to cover any major loss? This is a consideration you should closely review with your agent.
- Some wraps have high deductibles, $25,000 or higher. You will want a clear understanding of this exposure of what percentage of the deductible you will be responsible for if a loss occurs.
In summary, you should review your wrap contract and the insurance coverage provided by the wrap with your agent to determine if the project is going to increase your business liability and what gaps and contract traps you will be exposed to by being a part of the wrap insurance program.
About the Author
Patrick Barnes is the Assistant Vice President of Tutton Insurance Services, Inc.