Construction Wrap Up Experts Needed To Untangle Coverage Webs
A Construction Wrap Up is not a sandwich you get at your local Deli. Construction Wrap Insurance Coverage in the insurance industry may come in several forms with respect to construction projects. Usually Construction Wrap Coverage is what is known as an OCIP (Owner Controlled Insurance Program) or a Contractor Controlled Insurance Program (CCIP). Generically they are referred to as a CIP. If a CIP Policy is not used in a construction project, normally the Owner of a construction project would have his own insurance coverage and each contractor and sub-contractor would have their own policies of insurance. The contracts between the Owner and Contractor, and Contractor and sub-contractors would have indemnity clauses as well as requirements for naming others as additional insureds under their respective policies. Construction Wrap up Experts deal with these complex issues either on a consulting basis or as experts in litigation cases.
The Construction Wrap Up insurance programs attempt to minimize the need for the indemnity clauses and requirements for additional insured specification. The goal is to:
- Simplify the relationship between the parties in the event of damage claims.
- To minimize the need to allocate fault.
- And to make the claims procedure more economical.
In a OCIP program, the Owner purchases the policy and is usually named as the first named insured and the Contractor and subcontractors are “named insureds” if they opt to become part of the program. They usually purchase their participation in the program through their bid and a price adjustment to their contract, although it may be billed separately to each contractor, depending on the administrator of the program.
Theoretically the insurance coverages for the Contractor and each of the lower tier subcontractors are “Wrapped” into one policy so there is less chance that a gap in coverage might appear and to simplify the claims relationship. However due to the complexities of the coverages and relationship of the parties a Construction Wrap Up Expert should be retained early in the process (contract bid and/or claim filing) to explain and untangle the potential or existing web of coverage issues. If there is a single claims administrator, the possible conflicts or gaps in coverage may not appear immediately or be readily apparent.
WHAT ARE SOME ADVANTAGES AND DISADVANTAGES
1. A CIP may have some advantages:
a. Theoretically the insurance coverages for the Contractor and each of the lower tier subcontractors are “Wrapped” into one policy purchased by the Owner or GC so there is less chance that a gap in coverage might occur.
b. It is possible for the Owner or GC to obtain higher limits than the individual contractors or subcontractors could purchase on their own;
c. It may be possible for the Owner or GC to negotiate broader coverage at a better price than individual entities could negotiate separately;
d. There may be savings in litigation costs if the need to allocate fault between participating contractors is eliminated;
e. There may be cost savings in claims handling through a single administrator;
f. This is just a sample, there are other possible advantages;
2. A CIP may have some disadvantages:
a. Design professionals such as Architects and Engineers may not be covered, thus requiring the negotiation of indemnity clauses and insurance coverage clauses in those separate contracts
b. The size of the project needs to be sufficiently large to justify using a CIP program
c. CIP Insurance Programs usually are project specific, although it may be possible to broaden the coverage if the Owner or GC uses the same contractors on different sites. The Policy and contracts need to be carefully coordinated.
d. The Owner, GC, and subcontractors will have to maintain their own insurance programs for all other projects, anyway. Usually the standard coverages EXCLUDE projects that are covered by a CIP Insurance Program.
e. It is possible for a large loss to exhaust coverage limits, leaving other participants bare for other claims on the project, even if they were not involved in the loss that caused the exhaustion;
f. What about SIR’s (Self Insured Retentions)? Do they exist? How are they administered? Does each subcontractor have a separate SIR? Is there a common pool of funds? Who allocates use of the SIR? What happens to the funds at the end of the project
g. This is just a sample; there are other disadvantages or serious issues that need to be considered. A Construction Wrap Up Expert can assist you with these matters either early on at the bid stage or later in the litigation stage.
WHAT ARE THE COVERAGES INCLUDED IN A CIP POLICY
A CIP may include the following coverages. Each participant needs to know what is covered and what is not covered, who is covered, and who is not. If entities are missing from the CIP, a party needs to pay attention to how that missing contractor or professional may adversely affect their liability exposure:
a. Worker’s Compensation including Employer’s part B
b. General liability, Primary and Excess; Contributing or non- Contributing
c. Possibly Builder’s Risk
d. Possibly Construction Management liability
e. Possibility Professional Services liability
f. Possibly Environmental liability
g. Usually Commercial Auto Liability is EXCLUDED.
WHAT ARE THE COVERAGES THAT MAY BE EXCLUDED IN A CIP
It is possible for gaps in coverage to occur with respect to CIP’s. For example, what if the CIP is exhausted by a claim or claims and there is no Excess coverage above the Primary. Will the Insured’s own carrier step in to participate. In many instances the answer is “no” because there is an exclusion in the Insured’s separate policy for occurrences that are covered by a CIP. Consideration needs to be given to consulting with the Insured’s own broker or Construction Wrap Up Experts ahead of the project start to eliminate that exclusion, or get a Primary or Excess policy that has coverage language that will require the Insured’s carrier to step in if the CIP coverage exhausts or fails to defend or indemnify.
Likewise, there can be issues with whether the CIP coverage is Primary and “non-contributory” if other insurance exists. Who has the duty to defend and indemnify if “other insurance clauses” exist and are not dealt with at the outset of the project to specify who is primary. Logic would say the CIP policy is the primary coverage, but stranger things have happened.
Use Construction Wrap up Experts early in the process.
In terms of “Process” that means at the bidding stage; Get the CIP ahead of time from the Owner and have it examined for coverage gaps. Also, find out from the Owner who is in and who is going to be excluded from the coverage, if anyone; and, will SIR’s be required and how they will work. The insured should coordinate with its own broker, attorney, and Construction Wrap Up Experts to address the insurance complexities of the transaction. If, and when, claims are asserted, coordinate with the same persons early in the claims process to make sure the Insured is treated fairly during the claims or litigation procedure. Are there any conflicts between the Insurance carrier appointed defense counsel and the Insureds and is independent Cumis counsel required.