Wrap Up Exclusions - Key Challenges

In the world of risk and construction, Wrap Up programs (aka CCIP’s and OCIP’s) are relatively prevalent on vertical construction and civil projects. What are also common are Wrap Up exclusions that reside on most Contractor’s and Trade Contractor’s General and Excess Liability policies. These exclusions can be extremely troublesome if not properly structured.

What is the big deal anyway? The exclusions may be so broad as to operate in an unintended fashion. First and foremost, when firms are excluded from Wrap Up participation, the Owner’s and Construction Manager’s intention is to transfer the risk of loss back to the excluded party. The original ISO Wrap Up exclusion (CG 21 54 01 96) was tested in the New York Appellate Division, First Department in July 2015. The infamous case of Structure Tone vs. National Cas. Co. held that a wrap up exclusion applied to an excluded electrician because of one simple word – “involved.” Since 2015, ISO (in addition to numerous carrier forms) have replaced “involved” with the word “enrolled” which alleviates the issue. That is, unless there is additional onerous language in the form.

This landmark case, and now the standard by which Wrap Up exclusions are measured, barred risk transfer back to the electrician’s General Liability policy. This one ruling set the bar for Wrap Up exclusions country wide and created the need to review the language carefully and deliberately.

There has also been a troubling, recent emergence of Wrap Up exclusions extending to “offsite” locations. This is most definitely a red flag to risk transfer.

So, what is a Contractor to do? Work with your broker to structure well intentioned language. If your broker does not understand the issue, find one that does.

Construction Risk Partners specializes in these types of coverage issues. Please feel free to reach out to Mary Bishop (mary.bishop@constructionriskpartners.com) with any questions or to set up a training session.