The construction of a building carries a number of risks to all parties involved including developers, building owners, contractors, and construction managers. Each of these parties will want to be covered by insurance policies in order to avoid having to pay for damage or injury claims out-of-pocket. In some cases, the individual companies associated with a project will each purchase their own insurance. However, this can create exclusion gaps in which risks are not effectively covered. By joining one single policy, all parties may be able to reduce their overall risk and the cost associated with coverage.
Owner Controlled Insurance Programs are an effective way to improve the safety of construction operations and reduce the cost of insurance on large projects. The basic operational features of an OCIP are: (1) the owner purchases insurance coverage (all or some specific elements) to cover all contractors and subcontractors on a project; (2) there is an integrated owner-contractor managed safety program on the project; and (3) claims are processed centrally. Generally, the use of an OCIP can save money on large projects through lower bulk insurance rates, improved safety management processes, and reduced disputes between contractors over who was responsible for a particular loss.
There are two types of Wraps:
Owner-Controlled Insurance Program (OCIP): The OCIP is set up by the owner of the project for the benefit of the builder or contractor to cover all listed contractors.
Contractor-Controlled Insurance Program (CCIP): The general contractor may use a CCIP to extend coverage to all the contractors and subcontractors signed up on the project.
Benefits of Wrap Insurance as compared to conventional policies:
There is no need to assign responsibility for third-party liability or property damage, as all insured parties are covered under the same policy.
This insurance gives you more control over the risk coverages you carry on a project, as well as determining appropriate limits. In addition, there are dedicated limits of liability.
Subcontractors are provided coverage for multi-family construction projects, which are typically excluded from individual subcontractor policies.
This coverage can expedite the claim handling process, which leads to lower potential legal claims costs for owners, contractors, and subcontractors. Legal expenses are drastically reduced, in that you do not have litigation between contractors and subcontractors because they are all covered under the same policy.
When you buy a wrap insurance policy instead of individual policies, you can save as much as 30% to 50% on premium expenses.
It can also result in 1% to 2% reduction in project hard costs, as well as reducing contractor overhead and markup Issues.
You have the ability to choose which coverages you want for your project. The typical coverages included in a Wrap are:
- General Liability
- Excess Liability
- Builders Risk
You can also choose to include additional coverages, such as:
- Workers Compensation/Employers Liability
- Pollution Coverage
- Project Design Team Errors & Omissions
- Professional Liability
- Subcontractor Default Insurance
Other coverages can be added if necessary, depending upon the specific project.
An OCIP does not cover vendors, suppliers or material dealers and may also exclude contractors who handle hazardous materials such as asbestos and hazardous waste.
Typically, wraps were utilized in construction projects over $100,000,000.00. However, as the benefits of Wraps are becoming universally recognized, the trend now is to utilize a Wrap if at all possible, regardless of the size of the project.
If you or your business is considering a new construction project and you would like more information about Wraps, email our local Wrap expert Floyd here, or call our office (303) 279-9700 to be connected with someone who can walk you through your options.