CONSTRUCTION INSURANCE

Safeguard Your Project with Reliable Construction Liability Coverage

Owners and developers face significant risks in construction projects, with options to avoid, assume, mitigate, or transfer risk. This guide explores effective transfer strategies to safeguard investments and ensure compliance.

5 Effective Risk Transfer Strategies for Developers

1. Contractual
Risk Transfer

One of the simplest methods, contractual risk transfer indemnifies the owner under an agreement with the General Contractor (GC), who typically provides Additional Insured (AI) status under their insurance program.

Drawbacks:

  • Owners lack dedicated insurance coverage and rely on the GC’s policy limits.
  • The GC’s coverage may be depleted by unrelated claims.
  • Completed operations coverage for the owner is not guaranteed in the future.

2. Owners & Contractors Protective (OCP) Insurance

This limited liability insurance is purchased by the GC for the owner’s benefit, offering dedicated policy limits in addition to contractual risk transfer and AI status.

Drawbacks:

  • Coverage is limited to vicarious liability and general supervision of the contractor.
  • No coverage for sole negligence, contractual liability, or products-completed operations.

3. Project-Specific Owner’s Interest General Liability (GL)

A full GL policy purchased in the owner’s name, offering comprehensive coverage for premises and operations, contractual liability, and completed operations. Coverage is project-specific and based on factors like project type, location, GC quality, and contractual agreements.

Drawbacks:

  • Owners have limited control over insurance costs embedded in the GC’s bid.
  • Owners rely on the quality of the GC’s insurance, which may expose them to additional risks.

4. Project-Specific Owner/GC GL (Mini Wrap)

This full GL coverage policy names both the owner and GC, providing dedicated coverage for premises, operations, and completed work.

Drawbacks:

  • Shared limits between owner and GC.
  • Limited control over subcontractor insurance costs and coverage quality.
  • Subcontractors may struggle to secure necessary coverage for certain projects.

5. Owner-Controlled Insurance Program (OCIP/Wrap-Up)

A comprehensive GL program is purchased by the owner to cover all enrolled contractors in a project. While once used only for large-scale developments, GL-only wraps are now viable for projects as small as $10M–$15M in hard costs, with competitive insurance programs available.
Advantages:

  • Comprehensive Coverage: Ensures adequate protection for all contractors, avoiding hidden policy exclusions.
  • Cost Transparency: Eliminates insurance cost padding in GC and subcontractor bids.
  • Streamlined Claims Handling: Reduces delays by consolidating claims under a single insurer.

Disadvantages:

  • More complex setup requiring wrap administrators and third-party reviews.
  • Higher initial costs, though often offset by bid deductions.
  • May require a Third-Party Administrator (TPA) if a self-insured retention (SIR) applies.

A variation of the wrap program, rolling wraps cover multiple projects under a single policy. However, they can expose projects to limit erosion from unrelated losses unless structured with per-project reinstatement provisions.

Choosing the Right Risk Transfer Strategy

The best construction insurance option depends on your project’s size, risk tolerance, and budget. Our experts can help you navigate OCIP, GL wraps, and other cost-effective risk management solutions to ensure the right coverage for your needs.

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