X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

ORANGE COUNTY, CA-A mainstay of the commercial development industry for many years, wrap-up liability insurance programs, are gaining popularity with residential developers and builders.

Designed to cover all job-site related risks for owners, developers and their subcontractors, wrap-ups have been a popular product for commercial projects where construction costs are estimated to equal or exceed $100 million. Taking into consideration all trades involved in a project, payroll of at least $20 million is another benchmark measurement for needing a wrap-up.

According to Jamie Knoop, broker consultant for construction clients at the Newport Beach office of Marsh, convincing insurance companies to allow wrap-ups on residential projects was a tough sell initially. Then a 1995 decision by the California Supreme Court changed the way insurance limits are applied to construction defect claims. The new law made it difficult for subcontractors to get liability insurance, which caused insurance companies to at least consider doing residential wrap-ups.

“They resisted it. But when they realized that subcontractors were having problems getting any kind of liability insurance, then it made sense. Prior to wrap-ups for residential contractors, it was costly to identify all the subcontractors and their insurers when a claim was filed. There was also a tremendous amount of defense expense that goes along with that. With wrap-ups, there’s one policy and one defense,” Knoop notes.

For the most part, insurance companies are still reluctant to approve wrap-up programs on multi-family projects, mostly because the number of units involved does not pencil out to their benefit. Still, if a project is a mixed-use project involving some condominium construction, combined with either retail or commercial space or single-family residences, resistance by the insurance companies lessens.

Even better, the insurance companies like the idea of spreading the risk around more if a builder has projects going on in regions outside of California at the same time they are building in the state, especially if it is in areas where defect litigation is not as prevalent as in this state.

The benefit to developers and owners is obvious. By enrolling their contractors in the program, the contractors’ bids on a project are lower, because they deduct the cost of paying their own insurance premiums.

In Orange County, Knoop’s firm has done wrap-ups on a variety of commercial projects. Due to the size and value of the projects involved, very few insurance brokers are able to handle the administrative cost of doing wrap-ups for their clients. In the past five to eight years the market has been competitive and soft, especially in the area of workers’ compensation insurance, with rates decreasing 20% to 30%, notes Knoop.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

GlobeSt. Apartments 2020Event

Join 1000+ of the industry's top owners, investors, developers, brokers & financiers at THE MULTIFAMILY EVENT OF THE YEAR!

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.