One insurance policy for the whole job site.

The problem

Where separate policies stop fitting together

On paper, a project insured the conventional way looks well protected. The owner sets insurance requirements. The general contractor passes them down to the trades. Everyone produces a certificate. The compliance file is complete.

The policies behind those certificates were bought separately, by different companies, from different carriers, in different years, for different reasons.

One contractor may have a residential exclusion. Another may have a subsidence restriction. Another may carry lower limits than the subcontract actually requires. Completed-operations terms vary. Deductibles vary. Additional insured wording varies a great deal. Some of those policies may have renewed onto different forms halfway through the job.

None of that appears on a certificate of insurance.

Then a claim occurs.

Now several carriers are involved at once. Each is working out whose work caused the damage, whose policy applies, whether an additional insured endorsement responds, whether contractual indemnity applies, and who should pay what share of the defense. Those questions can take years to answer, and the owner is a party to the argument whether or not the owner did anything wrong.

That is the problem a wrap-up is built to solve. It is worth stating precisely, because it also explains which projects a wrap genuinely helps and which ones it does not.

What you are actually buying

A wrap-up is five things at once

A wrap-up is usually described as one policy covering everyone on a project. That is true, and it is incomplete. A properly structured wrap-up is five things working together.

• Insurance. The general liability, excess liability and workers’ compensation the project runs on.
• Contract administration. Enrollment, certificates for what sits outside the program, payroll reporting, audit and close-out.
• Risk allocation. How the construction contracts move responsibility between the owner, the general contractor and the trades.
• Claims strategy. One carrier, one adjuster and one defense, for as long as the completed-operations tail runs.
• Financial controls. Bid deductions, retention funding, and making sure the project does not pay for the same insurance twice.

Buying the policy is the straightforward part. The other four decide whether the program works.

The mechanism

How a wrap-up works

A wrap-up replaces that stack of separate policies with one program, bought by one party, covering everyone enrolled on one project. The contractors stop building insurance into their bids. They deduct that cost instead, and the sponsor buys the coverage centrally for the site.

"Wrap-up" is the generic term. OCIP means the owner sponsors it. CCIP means the contractor sponsors it, usually the general contractor or construction manager. The mechanics are close to identical. What changes is who holds the policy, who takes the risk on the deductible, and who keeps the savings.

If you are still getting your bearings on the terminology, what an OCIP is covers the definitions, the exclusions and a glossary of the words in the paperwork. The rest of this page assumes you have a project and are deciding what to do about it.

Why sponsors do it

Owners give three reasons, and they pull in different directions.

Cost. Buying liability and workers' compensation once at project scale usually costs less than forty contractors buying it retail and marking it up inside their bids. The sponsor also keeps the benefit of good loss experience instead of spreading it across forty carriers.

Limits. A wrap lets the sponsor buy the limits the project needs rather than whatever each subcontractor happened to carry. On a large job, the gap between a sub's $1M/$2M policy and a $50M program tower decides whether a loss gets covered or the owner gets sued.

Control. One carrier, one set of forms, one claims process, one safety program, and no seams between policies for an adjuster to work. Cross-litigation between enrolled parties mostly disappears, because everyone is insured under the same policy.

Experienced owners tend to rank control first. Cost savings are real, but they vary from job to job. Taking coverage disputes off the table between the owner, the general contractor and the trades changes how the whole job runs.

Scope

What it covers, and what it never covers

Most of the confusion around wrap-ups starts here. People hear "insurance for the project" and assume everything on site is covered. A wrap is narrower than that. It covers named parties, doing defined work, in one place.

Who typically cannot be enrolled

Most programs exclude a familiar list, and the exclusions are usually non-negotiable because they reflect what the carrier will not price:

• Hazardous materials abatement and remediation contractors
• Demolition and blasting, on many programs
• Trucking, hauling and material suppliers who do not perform on-site installation
• Design professionals. Architects and engineers carry their own professional liability
• Vendors making deliveries without installation
• Contractors below a stated contract-value threshold, who are often excluded simply to keep administration manageable

Comparison

OCIP vs. CCIP

The coverage looks almost the same. The difference is who sponsors, who controls, and who keeps the upside.

Usually it turns on one question. Who is going to be standing there in eight years when a construction defect claim arrives? On a CCIP that is the general contractor's program. If the general contractor has dissolved, been acquired, or burned through the aggregate on other projects, the owner finds out at the worst possible time. On an OCIP the owner controls the tail, because the owner bought it.

None of which makes an OCIP the right answer every time. A general contractor with a well-run rolling CCIP and a strong balance sheet can deliver better economics than a one-off owner program, especially on mid-sized jobs. The point is that the completed-operations tail deserves more attention than it usually gets while everyone is focused on the bid.

Fit

When an OCIP makes sense

Wrap-ups carry real fixed costs. Program administration, enrollment processing, payroll audits, safety oversight, and a broker running the thing. Below a certain project size those costs eat the savings, and the owner is better served by a conventional structure. We place those too, so the question on a smaller job is which structure fits, not whether it is worth asking.

Those thresholds are conventions rather than hard rules. A $20M project with unusual hazard, an awkward trade mix, or a subcontractor base that cannot buy adequate limits on its own may justify a wrap. A $60M job of routine tenant improvement work with ten well-insured trades may not.

What moves the answer

1. Total hard construction value. The biggest driver by far, because premium scales with it while administrative cost stays flat.
2. Duration. A three-year build spreads fixed program costs much better than an eight-month one.
3. Trade mix and payroll concentration. Wraps generate most of their savings out of workers' compensation. A labor-intensive project with high payroll in high-rate classifications leaves more room than one dominated by equipment and materials.
4. Subcontractor quality. If your trades are small and thinly insured, a wrap buys limits they could never carry on their own. If they are large and well capitalized with strong programs already, there is less to gain.
5. Residential or not. Residential and mixed-use construction carries defect exposure that follows the project for a decade. That changes the market, the price, and in several states the legal obligations. Every underwriter asks this first.
6. Loss history. Five years of currently valued loss runs drive pricing more than anything else on this list.
7. Jurisdiction. Some states are much harder for construction liability than others. Wrap economics in California, New York, Colorado and Florida look nothing like wrap economics in the Midwest.

Economics

How the money works

The financial side of a wrap confuses people more than the coverage does, because money moves in two directions at once.

Premium credits and bid deductions

Enrolled contractors are supposed to strip the cost of their own general liability and workers' compensation out of their bids, since the sponsor is buying that coverage for them. That amount is the premium credit, sometimes called the insurance deduction or the bid credit.

The problem is obvious. The sponsor cannot easily verify what a subcontractor's insurance actually costs, and the subcontractor has every reason to understate it. This gets negotiated, audited and argued about on every program. Common approaches are a stated percentage of contract value, a rate applied to reported payroll by workers' compensation classification, or a documented carve-out from the contractor's own policy declarations.

Get this wrong and the sponsor pays for the same insurance twice. Once through the wrap premium, once through subcontractor bids that quietly still include it.

Deductibles, SIRs and loss-sensitive structures

Most wraps of any size are loss-sensitive rather than guaranteed-cost. The sponsor retains the first dollars of every claim through a deductible or self-insured retention, and the carrier picks up above that. Retentions of $250,000 to $500,000 per occurrence are common on large programs, and a higher retention buys a lower premium.

So a wrap is partly a financing decision. The sponsor needs collateral, usually a letter of credit, and has to carry the retained losses on its own balance sheet for years while claims develop. An owner who has not budgeted for collateral gets an unpleasant surprise at binding.

The audit

Workers' compensation premium on a wrap is developed against actual payroll, reported by enrolled contractors, by classification, monthly or quarterly. Everything gets audited at the end of the program. Contractors who under-report payroll during the job receive a bill. Sponsors who budgeted off estimated payroll get a true-up in whichever direction the real numbers went.

Submission

What underwriters need to quote

Wrap-up underwriting moves slowly compared with ordinary commercial insurance, and the delay is almost always missing information rather than carrier appetite. A complete submission gets quoted in weeks. An incomplete one circulates for months. Have these ready:

Two things before you go to market. Flag residential and mixed-use projects at the outset, because carrier appetite narrows sharply and a submission that buries this detail wastes everyone's time. And get lender and tenant insurance requirements in hand first, since a program placed to the wrong limit structure has to be re-marketed.

The question that gets asked last

Does the insurance match the contracts?

A wrap-up policy and the construction contracts have to be designed together. On a surprising number of projects they are not, and the mismatch only becomes visible once a claim is being argued.

Four places they come apart

Indemnity broader than the coverage. If a subcontract requires a trade to indemnify the general contractor for obligations wider than what the wrap actually covers, that trade may still be carrying uninsured exposure. It has agreed to something its insurance does not answer for.

Limits that are not what they look like. Requiring $5 million of liability insurance does not mean $5 million will be available for a particular loss. Limits may be shared across projects, already eroded, or subject to an exclusion that applies to exactly what happened.

Additional insured status that does not do the work. Requiring additional insured coverage does not mean each policy contains the coverage the contract had in mind. The wording varies a great deal, and completed operations are frequently treated differently from ongoing operations.

Assuming enrollment replaces everything. Enrolling a contractor in the wrap does not make its own insurance irrelevant. It still needs coverage for work away from the site, for excluded operations, for vehicles, and for professional and pollution exposure.

It is also the reason a wrap-up decision is worth making early. Once bid instructions are out and subcontracts are signed, the insurance program has to be built around whatever allocation of risk already exists. Made in the other order, the contracts and the coverage can be written to fit each other.

For enrolled contractors

Enrollment and the subcontractor gap

If you have been told your work falls under an owner's or general contractor's wrap, two things are true at once. Some of your insurance is being bought for you, and you still need a policy of your own.

What enrollment involves

• Submitting your contract value and estimated payroll by class code before you start
• Deducting your insurance cost from your bid, which is the premium credit
• Attending site-specific safety orientation, and putting every crew member through it
• Reporting payroll on the program's schedule for the duration of your work
• Reporting claims through the program administrator rather than your own carrier
• Submitting to the end-of-program audit

The gap that catches people

The wrap covers you for work at that site. It does not cover your shop, your yard, your vehicles, your tools, your employees driving between jobs, or any other project you are running at the same time. You need a practice policy underneath the wrap for all of it.

That practice policy often gets priced badly, because your carrier now sees reduced payroll and exposure while the wrapped work has effectively vanished from your program. Talk to your broker before the deduction is negotiated, not after.

More administrators are also requiring enrolled subcontractors to carry their own limits for off-site work and name the administrator as additional insured on that separate policy, sometimes with extended completed-operations language attached. Those requirements are often unavailable at the price assumed in the bid. Read the insurance exhibit before you sign, not after you have been awarded.

California

California’s wrap-up statutes

California gives subcontractors on residential wrap-ups statutory rights that most of them do not know they have, and that some sponsors do not administer correctly. If you are building residential in California, or bidding into a residential wrap there, these two sections matter.

Civil Code § 2782.95: disclosure before the bid

For wrap-up policies on private residential projects begun after January 1, 2009, the owner, builder or general contractor has to disclose to each participant, before that participant submits a bid, the total amount or the method of calculation of any credit or compensation for premium required from them.

The contract documents also have to state the policy limits and scope, the policy term, the deductible and what triggers it, the number of units covered where applicable, and a good-faith estimate of the limits still available from the insurer. On request, a participant can obtain a copy of the policy itself, or the binder or declaration showing terms and limits, and has to keep it confidential apart from their own broker or attorney.

Here is the part that matters most. If the premium credit is not disclosed before bidding, the subcontractor keeps the right to increase the bid accordingly and is not bound by the bid as submitted.

Civil Code § 2782.9: indemnity and cost-sharing

For residential construction contracts entered into after January 1, 2009 where a wrap-up program exists, a contractor cannot require a subcontractor to indemnify, hold harmless or defend another party for any claim or action covered by that program. Those provisions are unenforceable.

Builders may require participants to contribute to the self-insured retention or deductible, but only if the maximum amounts and the collection method are disclosed up front, the contribution is reasonably limited and proportionate to that participant's scope of work, written notice is given before collection, and total contributions do not exceed the actual retention owed.

The statute also says it cannot be waived or modified by contractual agreement, act, or omission of the parties. A clause in a subcontract that purports to waive these protections does not work.

Statutory summaries are provided for general information and are not legal advice. Confirm current text and application with counsel. See Civil Code 2782.9 and 2782.95.

Pitfalls

Five expensive mistakes

1. Treating the completed-operations tail as an afterthought. The construction period is the easy part. Defect claims arrive years later, and whether the program still responds depends on terms negotiated at binding. Decide the length of the extension on purpose.
2. Leaving the premium credit undocumented. If the method of calculation is not written into the bid package, the sponsor pays for the same insurance twice and does not find out until the audit. On California residential work it is also a statutory obligation.
3. Assuming enrolled subcontractors are fully covered. They are not, and their carriers know it. The off-site gap is real, it accounts for a surprising share of claims, and a sponsor who has told subs otherwise has created a dispute.
4. Budgeting the premium but not the collateral. A loss-sensitive program requires a letter of credit that ties up borrowing capacity for years. Owners who budget the premium alone find out during binding, when the schedule no longer allows a change of direction.
5. Marketing an incomplete submission. Sending a partial package to the market burns carrier goodwill and returns indications nobody can rely on. Payroll by class code and five years of valued loss runs are not optional, and a submission without them will sit.

FAQ

Questions we get first

Grouped by who is asking, because the same programme looks different from each seat.

For developers and owners

For general contractors

For subcontractors

Who you would be working with

Cary W. White

Managing Director · ISU Insurance Services of San Francisco

Cary handles the wrap-up placements here. He has spent 38 years in construction insurance. The first ten were on the carrier side, underwriting builders’ risk and complex property exposures. The 28 since have been in retail brokerage, advising residential developers, general contractors and other construction clients on project-specific and annual programs.

He is also one of the original authors of the project liability application that much of the industry still uses to submit wrap-ups to carriers. In practice that means he knows what each question is actually asking for, and where a thin answer will cost you at quote.

cwhite@isusf.com · 415-613-5589