General Liability Only Wrap-Ups

David DeLaRue, CPCU, ARM, AIC

Senior Vice President

National Project Insurance Practice

General Liability OnlyWrap-Ups

General Liability (GL) Only Wrap-Up

• Defined– Project Specific General

Liability Coverage– Single policy for all insureds– Sponsored by the owner or

contractor– Covers all eligible

contractors– Should be used in concert

with practice programs

GL Only Wrap-Ups

ResidentialRisk

(Incl. Rolling)

CommercialRisk

Mid 1990’s to Present 2009 to Present 2010 to present

RollingGL Only

CommercialWraps

Benefits

• Coverage Certainty• Addresses Additional Insured &

Indemnity Requirements• Project Specific• Risk/Exposure Specific• Removes Primary Coverage

Concern for Small Subcontractors• Litigation Defense• Integrated Project Delivery • Reduce Cost of Risk

WC/GL Wrap vs. GL Only Wrap

• Standard Market

• Deductible

• Minimum Retention usually begins at $250K

• Better control over workers’ compensation (WC) claims.

• Little exposure for WC subrogation

• Carrier safety resources

• Standard ISO forms with wrap-up modifications

• Reliance on broker administrator – Carriers will consider broker experience in underwriting

• Normally does not mandate TPA for QA/QC

• Excess & Surplus (E&S) Lines

• Self-Insured Retention*

• Minimum Retentions begin as low as $25K (or lower)

• No control of workers’ comp. claims

• Greater challenge to secure protection from WC subrogation

• Limited safety services

• Greater use of manuscript forms and endorsements – No approvals

• Can mandate use of third party program administration in addition to broker

• Can mandate TPA QA/QC firm (Residential)

WC/GL CIP vs. GL Only CIP – Cont.

• Higher claims frequency (WC)• Better understanding of large

commercial project cover needs• Greater savings or profit

opportunity• Greater downside exposure• Greater administration burden and

cost• Fee based• Large collateral requirements• Greater government regulation• Claims adjusting fees apply• Longer lead time needed for

marketing and set-up• Greater contract dependence –

i.e., complex credit recovery

• Low claims frequency (GL)• Greater reliance on coverage

limitations such as Ins. vs. Ins.• Modest savings or profit

opportunity**• Limited downside exposure• Lower administration burden and

less cost• Often commission based• No collateral• Limited regulations• Claims adjusting fees may not apply• Less lead time needed for marketing

and set-up• Lower contract dependence –

Structure simplicity

Considerations

• Understand the broker’s relationship to the E&S carrier and wholesale broker.

• Consider any contractual limitations on using E&S coverage.

• Make sure the E&S carrier is approved in the state.

• Coordinate coverage with the practice policy.

• Self-insured retention or deductible.

• Start early and communicate with contractors.

• Primary and excess policy alignment.

• Amend contract for the wrap-up.

Considerations

• Surplus lines taxes and fees usually apply – they are your responsibility.

• Commission, Fee, or Combination – Understand the approach• Policyholder service differences.• Limitations of state guaranty funds if carrier fails.• Limits are shared and need to be adequate.• State wrap-up legislation is now more likely to include GL Only by

reference.• Exposures go beyond general liability.• Consider how you value the program to the owner.• E&S Lines are not regulated – Terms & conditions vary widely.• Contractors should request the policy and maintain a record of all

wrap-ups.• Underwriter anonymity – Attempt face-to-face.

Considerations

• Understand the implications of wrap exclusions on contractor policies.– Warranty period exposures

• Beware of state-specific forms: for instance, California residential construction.

• Is there an insured versus insured exclusion? Full or limited. • Broad form additional insured coverage as required by written contract.

– Some E&S carriers struggle with this allowance.• Understand the completed operations trigger – When does the clock

start?– Statutes of repose may exceed the completed operations term.

• Does defense erode the limit? If so, consider more limit.• EIFS exclusion – Does your project have it and policy exclude it.• Mandatory waiver of rights to recover.• Excluded contractors – No excluded contractors in the “chain of

insureds.”• Review the forms – Everyone!

Five Important Things

• Most wrap-up coverage benefits are delivered by the GL policy.

• GL Only rates can be more competitive than the GL rates on a WC/GL wrap-up.

• No collateral!

• Form freedom – Good, Bad, & Ugly

• Lower administration cost

Sponsors

• Ask if a project will be covered by a wrap-up.• Review the contract and the wrap-up policy.• Maintain thorough records of all project wrap-

ups.• Communicate requirements to lower level

subcontractors.• Structure practice programs as DIC.

Five Important Things

Contractors

Questions&

Answers