Commercial wrap-up insurance

The argument

A different argument from residential

On for-sale residential work the case for a wrap-up is usually about availability. A large share of the trades cannot buy general liability that covers the work, so without a wrap the project has subcontractors who are insured on paper and uninsured in fact.

Commercial is not like that. An electrician on an office fit-out, a steel erector on a distribution center, a mechanical contractor on a hotel: these trades can generally buy coverage for what they do, and most of them carry it. So the commercial wrap-up argument is not about whether coverage exists. It is about whether you want the project to depend on thirty separate decisions about how much of it to buy and on what terms.

Put next to each other, the two cases look like this.

The test

When a commercial wrap pencils

Four conditions tend to show up together on the commercial projects where a wrap is worth the trouble.

1. The project is large enough to carry the administration. Enrollment, payroll reporting, certificate review for excluded parties and the premium audit are a fixed cost regardless of project size. Somewhere around twenty-five million dollars in hard construction value is where that cost stops dominating, though the real figure depends on how many trades are involved and how long the job runs.
2. Limits matter more than premium. If the owner needs certainty about the size of the tower standing behind the project, and will not accept limits that another job could erode first, a dedicated project program is the only structure that delivers it.
3. The trade mix is wide. Thirty subcontractors mean thirty policies, thirty renewal dates, thirty sets of exclusions and thirty chances for a lapse. The more trades, the more the consistency argument is worth.
4. Somebody will run it. This is the condition that gets skipped. A commercial wrap on a project with no dedicated program administrator tends to drift, and by the time a claim arrives the enrollment records are incomplete.

Where fewer than three of those hold, conventional insurance with carefully written contract requirements, or a project-specific liability policy sitting over the owner and general contractor, usually serves the project better and costs less to run.

Project types

What gets placed as commercial

Commercial covers a wide spread of risk, and underwriters do not treat it as one category.

• Office and mixed-use. Usually straightforward. The complications come from occupied renovation and from residential components in a mixed-use building, which can drag the whole project into the residential appetite question.
• Industrial, warehouse and distribution. Large footprints, fast schedules, heavy equipment, high workers’ compensation exposure relative to construction value. Tilt-up and pre-engineered buildings price well.
• Retail and hospitality. Fit-out intensive, often phased, frequently with the owner operating part of the site while work continues. Occupied-site exposure is the thing underwriters ask about.
• Healthcare and institutional. Infection control, interim life safety, operating facilities and long schedules. A wrap is common here because the owner usually wants one claims file.
• Tenant improvement. Small individually, significant in aggregate. Rarely justifies a standalone wrap, frequently suits a rolling program across a landlord’s portfolio.
• Energy, water and infrastructure-adjacent private work. Specialist, and the exclusions list matters more than the limit.

Public works carry their own layer. California applies a separate disclosure statute, Civil Code 2782.96, to public and non-residential wrap-ups, set out on the California rules page, and public owners usually have their own program requirements on top.

Price

What moves a commercial number

Commercial wrap pricing splits more evenly between the liability lines and workers’ compensation than residential does, and on labor-heavy projects the compensation piece can be the larger half.

• Payroll by trade class. The compensation rate follows the classification codes, so a project heavy in steel erection, roofing or excavation prices differently from one that is mostly interior finishes at the same contract value.
• Experience modifiers and safety record. The sponsor’s and the general contractor’s, and in some structures the enrolled trades’.
• Height, depth and adjacency. Work at height, deep excavation, and anything next to an occupied building or an active rail or road corridor.
• Schedule. Both the length of it and how realistic it is. Compressed schedules with heavy overtime carry a known injury pattern.
• Retention and defense treatment. The size of the self-insured retention, and whether defense costs sit inside or outside the limit.
• Completed operations term. Shorter than residential, but not zero. A structural or envelope failure on a commercial building is still a completed operations claim.

Underwriters price the project in front of them, not the average project. A clean, well documented submission with real payroll estimates by class, a credible schedule and a named program administrator gets a materially better answer than the same project submitted as a contract value and a start date.

Structure

Limits, retention and who holds the risk

Three structural choices decide what the program is actually worth when something goes wrong.

Dedicated or shared limits. A limit dedicated to this project cannot be eroded by a loss on another job. A limit shared across a rolling program can be. On a single large commercial project the dedicated version is usually the point of doing it at all. On a rolling program it is a real negotiation, covered on the multiple projects page.

Defense inside or outside. A ten million dollar tower with defense costs inside it is not a ten million dollar tower once the experts have been paid. On a multi-party construction claim this is not a marginal difference.

Retention size and allocation. A larger retention lowers premium and moves the first layer of every loss onto the sponsor. Whether and how enrolled trades contribute to it then becomes a contract question, and on California residential work a statutory one.

None of the three is a default. All three should be quoted both ways so the sponsor can see what the alternative costs.

A common case

Tenant improvement and rolling programs

A single tenant improvement project almost never justifies its own wrap-up. A landlord doing forty of them a year across a portfolio is a different proposition.

A rolling program lets projects be added as they start, under eligibility criteria agreed with the carrier up front: a maximum construction value, a list of acceptable scopes, a geography, sometimes a maximum number of stories or a prohibition on structural work. Projects that meet the criteria go in without a new placement. Projects that do not are handled separately.

The thing to settle before signing is the limit. If the whole portfolio shares one tower, a serious loss on one fit-out can leave the next thirty jobs with less coverage than the leases require. Project-dedicated limits inside a rolling program cost more and remove that problem. It is worth pricing both.

Questions

Common questions

Next

Where to go from here

Commercial is one project type. The structure questions sit underneath it.

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