Owners and developers involved in construction projects must deal with the inherent risks involved with such projects. Their options are typically limited to avoiding (not move forward with the project), assuming (accept the risk and hoping for the best), controlling/mitigating, or transferring the risk. This article addresses the most common risk transfer options.
The simplest method of risk transfer, whereby the owner is indemnified by the General Contractor (GC) under contract and typically the GC is required to provide Additional Insured (AI) status to the owner under the GC’s program.
A limited type of liability insurance purchased by the GC on behalf of the owner. In addition to contractual risk transfer and AI status (although sometimes an OCP is used in lieu of AI status), an OCP provides the owner with their own dedicated policy with its own limits.
Full General Liability (GL) coverage purchased in the name of the owner only, providing the owner full GL coverage (e.g. premises & operations, contractual, products & completed operations and, if desired, extended completed operations, should the owner have the intent of selling the property). Coverage is limited to the designated project with dedicated limits. The coverage is underwritten by the insurance carrier largely based on the type of project and venue, the quality of the GC involved and the strength of the contract with the GC (e.g. indemnification agreement and insurance requirements, including limits). It is much more expensive than an OCP, but much less expensive than a project-specific GL policy covering both the owner and the GC.
Full GL coverage purchased in the name of both the owner and the GC, providing them full GL coverage (e.g. premises & operations, contractual, products & completed operations and, if desired, extended completed operations). Coverage is limited to the designated project with dedicated limits. The coverage is underwritten by the insurance carrier largely based on the type of project and venue, the quality of the GC involved and the strength of the GC’s sub-contract agreement (e.g. indemnification agreement and required insurance). It is much more expensive than an OCP and an owner’s interest only GL, but less expensive than an OCIP/Wrap project-specific GL policy covering all enrolled contractors on a project.
A comprehensive GL project-specific program purchased by the owner and intended to cover both the owner and all contractors (i.e. enrolled contractors) involved in the construction project. These programs provide full GL coverage (premises & operations, contractual, products & completed operations and, if desired, extended completed operations). Coverage is limited to the designated project with dedicated limits. The coverage is underwritten by the insurance carrier largely based on the type of project, venue and the quality of the GC involved.
Traditionally, wrap programs had been utilized for only the largest and most complex of construction projects. However, owners and contractors have increasingly come to appreciate their advantages for smaller projects. As recently as 2012, it was not uncommon to hear insurance professionals indicating that the minimum project size for a wrap was $100M in hard costs. These old rules of thumb no longer apply, at least in regard to monoline GL wraps. These GL-only wraps have become increasingly popular, even for projects as small as $10M - $15M in hard costs. In fact, many carriers have stepped up to offer competitive programs with GL minimum premiums starting under $100,000.
Another variation of a wrap program is a “rolling wrap,” which is similar to a GL wrap but is written to cover multiple projects that “roll” into the program as they come online. To ensure a successful “rolling wrap,” the types of projects should be homogenous and the GC and venue involved should be consistent. A major issue with this type of wrap program is that, unless limits reinstate on a per-project basis, each project is exposed to limit erosion from losses unrelated to the project in question.
OCIP’s are complex programs that require experienced agents and brokers. The advantages and drawbacks detailed above only scratch the surface of issues to be addressed, which may include SIR allocation, offsite coverage concerns and bid-process insurance cost handling (e.g. gross or net) considerations. Nevertheless, it is important to note that OCIP’s are increasingly the most cost-effective method for insuring construction projects in the current environment.
This article has only touched upon the basics of these types of risk transfer options. Contact your AmWINS casualty broker for further details and a discussion of the intricacies involved.
ABOUT THE AUTHOR
This article was written by Gary Grindle, a member of AmWINS’ national construction practice.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.
Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.
As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.
As the healthcare industry remains on the front lines of battling the COVID-19 pandemic, staying abreast of the changing landscape and how the insurance market is adapting is critical to ensure new exposures are covered and renewals are successfully placed. In this article, our specialists share what they are seeing in the Healthcare and Senior Care markets, tips for risk control and mitigation, and how to get the best results for insureds.
The disruption to business and everyday life caused by the coronavirus (COVID-19) pandemic is resulting in an economic impact for insureds. Much of this disruption is likely not covered by insurance. We have consulted with several AmWINS insurance specialists across the Property, Casualty and Professional Lines sectors and offer a COVID-19 update.
Parametric insurance is an innovative product that functions differently than traditional insurance by covering the impacts of an event and not just losses sustained to an asset. Proceeds of the policy are paid quickly and can be used flexibly to cover any expense associated with the triggering event. Coverages can be designed to capture the impacts of natural perils and other forms of non-damage business interruptions such as future epidemics. Learn how the parametric landscape has and will continue to play a major role in improving coverage and the recovery experience.
Over the last few years, the legal cannabis industry has seen rapid growth and had a significant impact on the U.S. economy. With states continuing to legalize its use, insurance needs for cannabis-related businesses are becoming a popular topic of discussion. This article examines the evolving cannabis industry by exploring five key issues impacting coverage.
Construction contract negotiations, which determine the kind and amount of insurance required for a construction project, can be time-consuming, complicated and frustrating. Project owners require contractors on a project to name the project owner as an additional insured on the contractor’s casualty insurance program. It's important that both project owners and contractors understand the coverage provided by these additional insured endorsements. This article discusses four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors, including their limitations, conditions and exclusions.
The theories of recovery, as well as the ensuing loss provisions, contained in property insurance policies are often complex and, at times, seemingly in conflict. Although a policy may not directly address these theories, their application by courts plays a significant role in the coverage determination process after the claim. It is essential that brokers understand the primary theories of recovery – Efficient Proximate Cause, the Concurrent Causation Doctrine, and the Anti-Concurrent Causation Doctrine – in order to navigate the challenging post-claim process and effectively serve their clients.