Avoiding pitfalls

Carefully consider projects with controlled insurance programs to avoid financial consequences

If you regularly perform public or private new construction work, you likely will encounter a project where insurance is being provided through a controlled or consolidated insurance program known as a CIP or "wrap-up." Although CIPs have been used for nearly 50 years in the construction industry to procure insurance, they recently have been used with increasing frequency and for a wider range of construction projects.

What are they?

A CIP is used to provide insurance coverage for an entire construction project under the umbrella of a single insurance policy. A CIP is used to procure and administer designated lines of insurance covering most contractors working at the project site in lieu of each contractor and subcontractor being responsible for purchasing and maintaining his or her own insurance and being required to name the owner and others as additional insureds under liability policies. Most CIPs are site-specific and established for a single large construction project with insurance coverage extending for several years but with a fixed duration. There also are "rolling" wrap-ups that are used for a series of projects. For instance, a general contractor might establish a rolling CIP that might cover three projects to be built over a five-year period.

Historically used almost exclusively for large new industrial, institutional and commercial construction projects, CIPs increasingly have been used in recent years for modestly sized residential projects, particularly condominiums and multifamily projects, and in states suffering from a high number of construction defects suits where smaller contractors have had difficulty obtaining insurance and whose policies may contain a multifamily exclusion. In fact, much condominium, multifamily and townhouse work in some states is performed with CIPs because of the difficulty contractors face when obtaining insurance for this work.