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Contractor-controlled insurance programs, also known as “wrap-ups,” can ensure that all companies involved in a construction project have adequate liability protection, even in states with anti-indemnity laws, insurance experts say.
“With a wrap-up, there's a single insurer. You don't have to worry about which insurance applies or how it is shared between contractors,” said Tracy Alan Saxe, a policyholder attorney from Saxe Doernberger & Vita P.C. in Hamden, Conn., who spoke during a session on navigating contractual indemnity and additional insured issues held during the recent Risk & Insurance Management Society Inc. conference in Philadelphia. “It's all about risk transfer.”
With a wrap-up policy, the owner or general contractor purchases a single commercial general liability policy that extends insurance protection to all contractors involved in a project, said Kevin King, risk manager at Turner Construction Co. in Montvale, N.J., who also spoke during the session.
Turner began using wrap-ups after a 1998 fire claim that involved a historic New York synagogue, he said.
At trial, Turner was found to be more than 50% liable for the fire, which was ignited by a roofing subcontractor and caused $32 million in damage to the 126-year-old Central Synagogue structure, Mr. King said.
By contrast, the roofer was found to be only 20% liable, he said.
Because Turner did not have builder's risk coverage on the project, which is a first-party policy that would have covered the damage claim, it sought coverage under the additional insured endorsements on its subcontractors' CGL policies, Mr. King said.
After 10 years of protracted litigation, Turner finally managed to extract $18 million from its subcontractors' insurers, Mr. King said.
By using wrap-ups, “it prevents finger pointing and having to sue contractors' insurers,” he said. “With a wrap-up, you have one carrier, you submit it, and they handle it and they resolve it.”
“Wrap-ups solve some of the problems that might be inherent in a nonwrap situation where you are doing contractual risk transfer and additional insured endorsements,” said Paul Van Osselaer, a partner at Van Osselaer & Buchanan L.L.P. in Austin, Texas, who also spoke during the session.
Well-established contractual risk transfer provisions used by construction contractors are being challenged by changes in state laws and additional insured endorsements contained in commercial general liability policies.