Owner-controlled or contractor-controlled insurance programs are inching their way into projects never envisioned for their use. These “wrap-ups” can increase subcontractor risk through inadequate coverages and greater administrative costs. You will also hear people refer to wrap-ups as consolidated insurance programs. Here’s what’s behind these insurance products and some key points to consider.
Insurance At A High Level
The prime contractor sponsors and manages a CCIP while an owner is responsible for an OCIP. When you sign on to a wrap-up, your project insurance is included in one policy with everyone else’s.
Both CCIP and OCIP seek to limit insurance costs on projects with high value and a lot of participants. Wrap-ups are gaining popularity on high-risk projects like multifamily construction, and are entering the space of small, single-site projects.
The States’ Involvement
To better control consolidated insurance programs, some states set minimum project costs for them. Your state’s insurance regulations have a lot to do with the value you’ll get or the risks associated with a CCIP or OCIP participation.
For example, in California, if you sign on to one, any requirement in your contract for you to indemnify somebody else is largely unenforceable. That can be a huge advantage.
Meanwhile, in Nevada, while the same prohibition applies to indemnification, the state regulates only the workers’ compensation aspect of the programs. That means you have an extra duty to carefully review the coverages to make sure they are both relevant and inclusive of your risks. Otherwise, you might end up having to buy additional coverage.
Coverages and Risks
While CCIPs and OCIPs are both wrap-ups, you will find differences in coverages, limits, administration, handling of claims and your costs. So, view each one as a unique insurance product.
Never assume a wrap-up covers every risk. For instance, you will still need vehicle liability and equipment insurance. Wrap-ups don’t necessarily cover every party involved in the project, either. For example, these policies often don’t cover environmental remediation and demolition. They might also exclude people who make deliveries to the site and other parties you interact with and who might pose risks to you.
Wrap-ups often exclude off-site fabricators. So, whenever the policy doesn’t cover someone you work with, you have a gap in coverage. You need to know who these uncovered parties are so you can decide if additional insurance is needed to cover risks arising from their presence, or their work on the project.
You might also have a gap in coverage for your employees who don’t work exclusively at the site, but who must be on site intermittently.
You will still have to make sure they are covered for mishaps when they are on site.
Deductibles and Cautions
If you see the term ‘self-insured retention’ in a wrap-up, that’s just a different name for a deductible. It means that you will self insure for the amount specified. The wrap-up won’t pay any claims you bring until you’ve spent the SIR. Therefore, you will need to carefully consider how much you can afford to dish out before the insurance kicks in, or you’ll need to consider additional insurance to cover that risk.
Other cautions about consolidated insurance programs are directly related to your business. You can run into disputes about your insurance credits and lose control over your own claims. If you participate in a “manuscript CIP,” the document is not a standardized insurance offering. Perhaps the sponsor had it written for the specific project risks, or it may be tailored to favor certain project participants, or both. If you sign a CIP that is a standard form policy, then it is likely an Insurance Services Office standard form. The differences between this and a manuscript form can be significant.
Since these insurance programs are evolving, case law is still developing. As of now, some states don’t even have statutes or guidance on their use. For example, some plaintiffs have argued that OCIPs run counter to existing insurance statutes.
Weighty Advantages Too
There are some compelling reasons for subcontractors to view wrap-ups in a favorable light.
Wrap-ups change the insurance burden of subcontractors who historically shoulder the bulk of the risk as contractors pass it down the chain. With the wrap-up in place, all parties share the risks in defects, property damage, and personal injury. Wrap-ups still preserve the exclusive remedy rule.
The exclusive remedy rule, used by all states, only allows a worker injured on the job to receive damages through the state workers compensation system. In other words, participating in your state’s workers compensation program protects you from lawsuits related to injured workers. Although some states have exceptions, mostly the protections of exclusive remedy hold up under CCIPs and OCIPS.
There have been challenges to the exclusive remedy under OCIPs, but those have not eroded the protection of the exclusive remedy rule.
Another big wrap-up advantage has to do with qualifying for projects you might not otherwise be able to insure. Wrap-ups often help subcontractors with small to medium-sized businesses get on the high dollar projects.