Insurance plays a vital role in the construction industry. In many locations, it has even become an important prerequisite for obtaining regulatory permits and winning the trust of potential clients.
Consider the City of Beverly Hills, California, as a good example. In the City of Beverly Hills, possessing an Insurance Certificate is required documentation for vendors applying for the city’s construction projects. For more information about this, you can see: https://www.beverlyhills.org/.
However, being insured has led to several complexities for the construction industry. One such complexity stems from the number of insurance plans that surround a project. This is because several involved contractors, subcontractors, and even stakeholders are usually independently insured.
Fortunately, wrap-up insurance has simplified things, besides offering other benefits. Read on as this article discusses more about it.
What is Wrap-Up Insurance?
This plan essentially consolidates several insurance plans. It considers the liability coverage needs of many or all project players. This ensures adequate liability coverage for the general contractor, contractors, subcontractors, and the owner on construction projects.
Since it consolidates several plans, confusion regarding who manages or controls the policy is quite understandable. However, even this is well figured out since it can either be managed by the general contractor or the project’s owner.
Options managed/controlled by the project’s owner are known as the Owner Controlled Insurance Program (OCIP). On the other hand, options managed/controlled by the general contractor are known as Contractor Controlled Insurance Program (CCIP).
Construction industry players must understand how this liability coverage arrangement works. Doing so offers many benefits and eliminates several complexities usually associated with insurance, especially in the industry. For this reason, we provide a well-arranged breakdown below of how it works.
Centralization/Consolidation
It merges various policies into one, providing adequate coverage for all concerned parties under the centralized arrangement. You will often find workers’ compensation and general liability in these centralized policies, for instance. This does a lot for reducing or even eliminating confusion.
Enrollment
The fact that this centralized plan offers coverage to a lot of people cannot be overemphasized. However, eligibility for this wrap up coverage is important, as anyone offered liability coverage of any sort must be eligible for it. This requires that the policy clauses are well understood, particularly the part that concerns eligibility for this master policy.
Controller
The project owner or general contractor controls the plan, which covers many parties. This simply means either the project’s owner or the general contractor purchases the policy and ensures its obligations are met.
Benefits of Wrap-Up Insurance
Insurance, even in a broader sense, is beneficial. The vast number of available plans proves this.
However, choosing the right plan is equally important, and this seriously requires considering your needs. For the construction industry in particular, wrap-up insurance is almost necessary. The following benefits justify this stance:
Uniformity
This master policy offers everyone eligible and enrolled the same coverage terms and limits. For one, the uniformity helps ensure no overlaps in protection. It also reduces insurance gaps.
Cost-Effectiveness
Just as you can get discounts for bulk purchases, you get them with wrap-up coverage. Rather than having individual contractors, subcontractors, and several other concerned parties purchase plans separately, a bulk/master policy is purchased. This proves cost-effective in several ways, including:
Lower Premiums
You gain the advantage of lower premiums when you compare with what independent plans would have cost. Do not only consider the numbers the insurer proposes. Break down the cost in detail and compare it to what independent coverage would cost the project.
Competitive Bids
Several factors determine the total cost of a construction project. However, some are more of a determinant than others. Subcontractor costs significantly determine the total cost.
Wrap-up coverage, which covers subcontractors, would likely result in more competitive bids from subcontractors. The availability of liability coverage, for which they do not pay premiums, could make them reduce their charges.
Reduces/Eliminates Insurance Duplication
Duplication is prevented, and this saves costs. In simpler terms, insurance duplication is like paying for the same service twice when you only need it once. You can click here for more information on what it implies.
Streamlined Administration
Insurance plays an important role in the construction industry. For example, a construction company can lose a project without it.
One problem with independently sought coverage is that it involves a lot of paperwork. For instance, imagine a construction project that involves the following subcontractors:
- Carpenters
- Welders
- Masonry
- Electricians
The electrician’s delay in insurance paperwork can harm the project, even if others complete theirs on time and properly. This can lead to project denial, fines, and other consequences. Thankfully, wrap-up coverage takes care of this by wrapping everyone involved under a major coverage.
Better Risk Management and Enhanced Safety
Centralizing coverage improves workplace safety on construction projects. This is because a single insurer offers increased consistency of safety standards and programs at the project’s site.
Reduced Litigation
If/when the need to invoke liability coverage arises, it is not unusual to have legal disputes if the various involved parties have independently sought coverage. A wrap-up coverage plan minimizes the chances of this happening. This is clearly because a single insurer handles everything.
What Wrap-Up Insurance Typically Covers
A wrap-up insurance plan should be comprehensive. One would expect this, given the number of involved players. This comprehensive plan typically covers:
Workers’ Compensation
This covers workers injured during or as a result of their duties. It can cover the following:
- Medical Expenses – For those injured during or as a result of duty
- Disability Benefits – It provides disability benefits only for serious or permanent injuries sustained during or as a result of duty
- Lost Wages – It covers lost wages due to absence from work resulting from injuries sustained during or as a result of duty
Workers’ compensation can play out in these ways. Understand the policy clauses well and ensure they are reasonable.
Commercial General Liability
The nature of construction is such that it can also affect those indirectly involved. This has to be factored in for adequate coverage. Commercial General Liability is one of the few ways insurance accounts for how the project can affect those indirectly involved.
For example, imagine a wall collapses and affects a neighboring building. Commercial General Liability ensures the neighboring building receives compensation for the damage. For more contexts on commercial general liability, you can visit: https://www.tdi.texas.gov/.
Excess/Umbrella Liability
Workers’ compensation and general liability arrangements, though broad, still have boundaries. These boundaries can mean ineligibility for compensation when the need arises.
Excess/umbrella liability exists for this reason. It provides additional protection when the aforementioned coverage falls short. Many policies, for example, limit compensation. Excess/umbrella liability can help insured parties obtain more compensation.
Conclusion
While wrap-up coverage is typically comprehensive and covers a lot, do not mistake it for covering everything. For example, it might not cover damages caused by:
- Faulty Advice by Professionals
- Engineering Mistakes
- Design Errors
This does not mean that no coverage is designed to cater to the aforementioned. However, wrap-up coverage is not likely to include that. So, you must get something that offers adequate insurance, and that could require getting some additional policies in some cases.
