Large-scale construction projects involve many parties—owners, general contractors and subcontractors—each managing significant risk. Traditionally, each party procures and maintains separate insurance coverage, and contractors and subcontractors factor the cost of that insurance, plus a markup, into their project bids. Risk is then pushed downstream through contractual indemnification, contractually mandated minimum insurance requirements and additional insured provisions.
While customary, this approach isn’t without complications. With multiple policies and insurers involved, coverage gaps can emerge; some parties may carry inadequate limits, have gaps in coverage or have no insurance at all. Because various insurers cover one project, a single claim can also trigger costly, time-consuming cross-litigation among carriers.
As an alternative, project owners and general contractors can turn to a wrap-up insurance program, sometimes called a controlled insurance program, to centralize insurance and loss control for the entire project under a single policy or set of policies.
What Do Wrap-up Programs Cover?
Insurers generally offer two types of wrap-up programs, based on which party sponsors and controls it:
- Owner-controlled insurance program—The project owner sponsors and controls the program as the first named insured, with the general contractor, subcontractors and other participants named as insureds.
- Contractor-controlled insurance program—The general contractor sponsors and controls the program as the first named insured, with subcontractors and other participants named as insureds. Depending on the program, the project owner is either an additional insured or a named insured.
Wrap-up programs are most often used for large, single-site projects, though a rolling wrap-up can extend coverage across multiple projects under one program. Most programs insure workers’ compensation, employer’s liability, general liability and excess liability for claims arising on the project site during the policy period, and many can be expanded to include builder’s risk, environmental liability, contractor default and professional liability coverage. Liability away from the project site—such as off-site manufacturing, assembly or goods in transit—is typically excluded, as are high-risk operations like blasting and demolition.
Benefits of a Wrap-up Program
Wrap-up programs can offer meaningful advantages over the traditional insurance model, including:
- Potential cost savings through volume-based pricing across the entire project
- Consolidated coverage that gives the controlling entity greater oversight of coverage types, scope and limits
- Higher liability limits than contractors or subcontractors might carry individually, reducing exposure for owners and general contractors
- Centralized safety and risk management services that can reduce the frequency and severity of claims
- More efficient claims processing through a single controlling insurer
- Fewer coverage disputes and subrogation issues among insured parties
However, wrap-up programs can be expensive to obtain, though sponsors can offset costs with higher deductibles or by distributing premium costs across participants. Sponsors also assume administrative responsibilities that may require dedicated staff or a third-party administrator. Like any insurance product, anticipated savings depend on market conditions.
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