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Wrap-Up Construction Projects

Explanation of rules, features, and benefits of Wrap-Up Construction Projects.;

An explanation of Wrap-Up Construction Projects is found in the Basic Manual Rule 3.23. "A wrap-up construction project is a large construction, erection or demolition project for which policies have been issued by one or more carriers under the same management, to insure two or more legal entities that are working on the project."

Many contractors may be lumped together for the purposes of premium discount or retrospective rating, however, separate polices and experience ratings must be issued for each contractor per:

Basic Manual Rule 3.A.5.a. Combination of Legal Entities: "Separate legal entities may be insured by one policy only if the same persons, or group of persons, own the majority interest in such entities. Where combination of separate entities is permissible, a single policy may be issued to insure more than one corporation."

Experience Rating Plan Manual, Rule 5.D.1., "...There shall be no experience modification for the wrap-up construction project as a unit."

Our rules no longer require that the ICRB or NCCI approve a wrap-up construction project. Here's an overview of the reasons for setting up such a project.

Features/Benefits
 One carrier
 Policies issued to each contractor
 Each contractor keeps own mod
 Each contractor keeps separate policy for its other or regular operations
 Premium paid by owner or general contractor
 Premium combined for premium discount or retrospective rating
 Claims managed by one carrier

The essence of a Wrap-Up involves contracts that are let on an ex-insurance basis. This means that the bids for work on the project were submitted excluding the workers compensation cost, with the agreement that the workers compensation insurance would be procured by the owner, principal or general contractor. Under the Wrap-Up approach, such insurance is provided in the individual names of the contractors and subcontractors on the project. The premium is paid by the owner, principal, or general contractor, but each contractor or subcontractor nevertheless has a workers compensation insurance policy in its own name with its own experience modification. Payroll and claim data for each contractor involved with the project are segregated out and reported to the ICRB/NCCI for use in the calculation of the contractor's future experience rating modifications.

The benefit from a premium level standpoint is the combination of all policies in the "Wrap-Up" for premium discount or retrospective rating purposes. Based on the above information, it would behoove the owner, principal, or general contractor to hire contractors with good safety records. Such a practice should reflect good past experience (credit mod) which in turn should result in a lower overall premium for the owner, principal, or general contractor. Hiring contractors with good experience records would also enhance the owners/contractors chance of a return premium on a retro plan. Hiring contractors with poor safety/loss records would likely increase the cost of insurance.

The wrap-up rating program provides an eligible construction project the benefit of a lower premium by means of premium discount, or the advantage which may develop under the flexibility of retrospective rating. In addition, the experience generated by each contractor involved in the Wrap-Up will be included with other eligible experience of each contractor for purposes of developing each of their experience modifications. Therefore, based on the requirements of the wrap-up program, the advantages are for the owner through premium discount or retrospective rating.

The wrap-up policies secured by the owner for the project are standard policies. Beyond its wrap-up policy, each contractor will also have a separate policy to cover its other or regular operations in the state. Some carriers may want to attach the Designated Workplace Exclusion Endorsement (WC 00 03 02) to either a contractor's wrap-up policy or the contractor's policy covering its regular operations. This endorsement cannot be used because Indiana law does not allow limits to policies. IC 22-3-5-5 says all policies are "presumed to cover all employees and the entire compensation liability of the insured." The carriers involved must be sure their claims and audit staff manage the claims and payroll between the two exposures. The carrier would want to be sure that a contractor's claim applies to either the wrap-up project job or its other operations not connected to the project.

The wrap-up rating program was established with the interest of the insurance buyer in mind. Expense savings beyond the premium savings mentioned above accrue through prompt attention to injured workers by means of a central claim location, central first aid, and medical facilities which are available to all workers on the project regardless of their employer. A single coordinated safety program is often established for the entire project. Because all project policies are issued by one insurance carrier, the review of coverage by the buyer is simplified and the payroll audit is expedited and simplified.

Owner Controlled Insurance Program
An OCIP is an insurance program for construction projects, similar in concept to Wrap-Up Construction Projects. Unlike traditional construction insurance coverage where each contractor provides his or her own insurance coverage, an OCIP allows the owner of the construction project (like a school district or hospital) to purchase a master program covering all construction and contractors associated with a given project. The contractors then submit their bids net of insurance costs. Owners can realize savings of 1-3% of their total construction costs. Savings are generated by purchasing a less expensive master program, rather than by purchasing individual policies. In general, coverage will include worker's compensation/employer's liability, general liability (CGL) and builder's risk property insurance.

More Information
For more reading on OCIPs, click on this link to an article titled "Owner Controlled Insurance Programs: Why Owners Like Them and Why Contractors May Not" July 14, 2003, byy Bradford A. Nilsson, Thelen Reid & Priest LLP

International Risk Management Institute, Inc. website IRMI.com has a good article titled "Wrap-Ups: Back to Basics" published in March 2006.

The Indiana Code is available on the State of Indiana website at this address: http://www.state.in.us/legislative/ic/code/.

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The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.