SAN DIEGO — The complex cross-litigation that often results from claims against “wrap-up” insurance programs can be minimized — if not avoided altogether — simply through better communication and preparation among program participants, a panel of experts said Tuesday.

Wrap-up programs sponsored and controlled either by a project's owner or its general contractor typically provide general liability and workers compensation insurance for contractors in exchange for those firms' adherence to project delivery deadlines, safety protocols and other guidelines.

Though an effective means of controlling construction costs and enhancing onsite risk management, wrap-up programs can quickly become mired in infighting among insurers and contractors when liability or workers compensation claims are filed against one or more of the program's participants, panelists said during a discussion at the International Risk Management Institute Inc.'s 33rd annual Construction Risk Conference in San Diego.

“Transparency issues, when they occur, are generally born out of a lack of knowledge or misunderstandings as to what each wrap-up participant's requirements and responsibilities are under the policy, and a lot of that is the result of a lack of communication,” said Robert Yeadon, national corporate claim director at Montvale, N.J.-based Turner Construction Co.

In particular, panelists said consistent, regular dialogues between participants enrolled together in a wrap-up can greatly reduce the likelihood of disputes over insured status, project delays, payment default claims and other issues that are commonplace between general contractors and their subcontractors.

“The subcontractors especially need to understand what the wrap-up does and does not do for them. Sometimes there's this perception that a wrap-up is a magic policy that's somehow broader than any other kind of traditional general liability product, and that's not necessarily the case,” said Todd Schweitzer, a San Diego-based assistant vice president at Zurich North America.

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Preparation in the advance stages of a project's planning is also critical to the health of a wrap-up agreement, panelists said, especially in the event a claim for liability or workers compensation must be investigated.

“The art of investigating a wrap-up claim, in our view, starts long before the first shovel goes into the ground,” Mr. Yeadon said. “One the keys is having your investigation team together, including a field inspector who's ready to be deployed at any moment's notice and who's trained in both workers compensation and general liability.”

The team should also include nurse case managers who are familiar with your company's return-to-work program, defense counsel and dedicated construction claim adjusters, Mr Yeadon added.

Panelists also stressed the importance of early claim reporting, for the benefit of both the insured entities and the insurers providing coverage.

“A lot of claims for things like construction defect begin as a single issue, such as water infiltration at a particular point in the building envelope,” Mr. Schweitzer said. “If you don't get out and address that issue in a timely manner and resolve it, the next thing you know the claimant has gone out and hired a lawyer or a forensic expert. They're going to go through and probably find 20 other issues that they'll claim are the result of defective materials or work, and before long, what started as a $200,000 issue is now a $2 million issue.”

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