Understanding coverage exclusions in a subcontractor’s commercial general liability insurance policy can be a daunting task. What the insuring language of the policy appears to provide, may be taken away through a policy exclusion. Such may be the case where a construction project provides an Owner-controlled Consolidated Insurance Program (“OCIP”) or a Contractor-controlled Consolidated Insurance Program (“CCIP”). Such Consolidated Insurance Programs are commonly referred to as “Wrap-Up” policies. Consolidated Insurance Programs are centralized insurance and loss control programs that cover the project owner and all contractors and subcontractors. These programs are paid for by either the Owner or the General Contractor and, typically, all subcontractors are expected to enroll in the program. A “Wrap-Up” exclusion endorsement is used by insurers to remove coverage from a contractor's own commercial general liability policy to the extent the CGL policy overlaps with the coverages provided for the contractor under a Wrap-Up insurance program.
Take the case of 99 Church Inv’rs LLC v. Old Republic Ins. Co., 2020 NY Slip Op 30608(U) (N.Y. Sup. Ct. 2020). There, an employee of a subcontractor brought a personal injury action against the general contractor. The general contractor maintained that any liability arising from the work was actually caused by the negligence of the injured worker’s employer and that, therefore, the general contractor was entitled to coverage as an additional insured under the subcontractor’s CGL policy and corresponding excess policies.
The subcontractor’s insurance carriers contended that they had no obligation to defend or indemnify the general contractor based upon the “Wrap-Up” exclusion contained within the subcontractor’s CGL policy. The exclusion provided that the CGL policy did not apply to liability or damages arising from:
[a]ny of your prior or ongoing operations or operations where the prime contractor, general contractor, project manager, owner of the construction project, or you sponsor(ed) or participate(d) in a Consolidated Insurance Program (CIP) or Wrap-Up, regardless of whether or not the Consolidated Insurance Program (CIP):
(1) Provides coverage identical to that provided by this policy
(2) Has limits adequate to cover all claims; or
(3) Remains in effect;…
The Supreme Court of the State of New York agreed. Coverage for the general contractor as an additional insured under the subcontractor’s CGL policy was denied because the project had an OCIP that was sponsored or participated in by the general contractor, the project manager, the owner of the project, and the injured worker’s employer.
It is easy to envision a circumstance where such a Wrap-Up exclusion also could be relied upon by an insurance carrier to deny coverage to its insured or to an additional insured after a project is completed and the Wrap-Up policy expires. Contractors and subcontractors may want to consider speaking with their insurance brokers about the possibility of removing Wrap-Up exclusions from their CGL policies, even if to do so would require an additional premium.
