In our December webinar, we invited Melody Olson, a sales executive in Propel Insurance’s construction and real estate group to review liability insurance for property development projects.

Traditional general liability insurance is carried by owners, general contractors and subcontractors. These individual policies can carry residential limitations and exclusions, and the amount and type of coverage can vary widely between parties. This is one reason that led to the rise of wrap-up or wrap insurance programs that provide blanket protection for all contractors and subs on projects, such as:

• Commercial or multifamily projects: wraps come into play for projects starting at $30-40 million in hard costs.

• Condo projects: almost all of these go with wraps since getting coverage for condo projects is difficult if not impossible.

This coverage can be owner-controlled (purchased by the property owner/developer) or contractor-controlled (purchased by the general contractor or construction company). In either case, the policy covers all parties; the owner, general contractor and subs on the job. Dedicated limits and robust coverage forms prevent gaps in the coverage or potential dilution of limits.

Wrap Insurance Coverage Options

Typical wrap policies cover general and excess liability. With larger projects, workers compensation can be included under the WRAP in non-monopolistic states. Additional project insurance policies can be procured for a development:

• ·Pollution WRAP, contractors pollution for all contractors on site which is usually purchased by the project owner​. It provides dedicated limits and guaranteed statute coverage under one tower of limit. There are no enrollment conditions. The most common claim is for mold and fungus, which are excluded under general liability policies.

• Pollution legal liability insurance, which is often required by lenders or purchased when the developer is concerned about contaminants on the site. It applies first-party and third party coverage for unknown contaminants (weren’t discovered in a Phase 1). Coverage includes clean-up and disposal costs including liabilities arising out of migration to other sites. PLL policies exclude existing or known conditions (including underground storage tanks and leaks) or intentional acts.

• Builders risk coverage covers the property during construction. It covers total hard and recurring soft costs (such as re-permitting, arch & design fees, loan carrying costs) and loss of rents/delay in completion for up to 12 to 18 months. Make sure it covers the owner, general and subs at every tier; and that it has adequate offsite storage and transit limits, especially for larger projects or bulk materials buys. It’s also important to look for an adequate contractual waiver of subrogation.

Considerations

Wrap/OCIP/CCIP programs vary in terms and conditions. It’s important to look at the manual that outlines coverage, limits and deductibles (which are at the discretion of the policy sponsor). The baseline deductible is about $50,00 per claim, and owners can pass portions or all through to the general contractor and another portion to subs.

Find out if the policy is a “rolling wrap”, which is popular with developers and builders who have large project pipelines. This allows them to place a wrap for every project they’re working on, which creates additional economies of scale. Make sure you understand the specific terms and how exposure is spread throughout the portfolio.

It’s also smart to evaluate the:

• Adequacy of limits for your project (some traditional policies have wrap exclusions)

• Quality of coverage (limitations or exclusions)

• Conditions of enrollment (required off-site limits for auto, pollution, etc.)

• Bid methodology (are subs being bid net of insurance or with insurance)

Wrap policies are complex. As with any decision about insurance, it’s wise to consult your insurance advisor and your attorney to understand your specific requirements, risk exposure and the coverages that make the most sense for you.  

Get more details by tuning into the full session below.

This information doesn’t constitute insurance or legal advice. Always check with an attorney, real estate investment or insurance expert before making decisions.

As always, reach out if you have any questions.