As an alternative to having each construction party obtain its own insurance or have the contractor add the owner, consultants, and subcontractors as additional insured parties to their existing policy, the owner or the contractor can obtain what is known as wrap-up insurance. The policy generally provides coverage for all the players in the construction pyramid from the owner, through the consultants, to the subcontractors for commercial general liability, professional, and other liability insurance. This type of policy helps to lessen the chance of disputes between parties since there is only one insurer. In addition, wrap-up liability insurance can lead to premium savings if the policy provides a party (e.g., the engineer) with enough coverage to avoid paying an increased premium on its own policy. They are placed for the construction period plus several years afterwards in case issues arise during the warranty period. The advantage of a wrap-up policy is that they tend to have higher limits at a lower cost.
Exclusions in the Wrap-Up Policy
Who is an Insured?
While identification of parties covered is generally defined in the construction contract, some contracts may define subcontractors quite broadly. As a result, despite some individuals being included in the definition of subcontractor in the construction contract, such as those who work off-site, insurers will generally not cover them under a “wrap-up” policy.
Damage to the Project
Wrap-up policies do not generally cover the damage that arises to other work on the site as a result of damage done by the insured’s own work. As a result, care should be given to assessing wrap-up commercial general liability policies given the coverage limitation on damage to the work of other subcontractors on the project.
As always, if you have any questions about construction insurance, please reach out. Next time, we will be doing an overview of “subguard insurance”
Written by Jeremy Power, a lawyer in Cotney Construction Law’s Toronto office.