Why Are There Wraps?

Construction projects involve many companies… developers, general contractors, trade subcontractors, architects, engineers, and material suppliers, among others. Historically each of these companies would provide some level of insurance to the project. Logically this made sense… if a loss happened as a result of one sub’s work, for example, their insurance should kick in to fix the problem. However, due to the large number of companies involved in a construction project, in conjunction with variations in how the insurance policies were written and interpreted by the courts, the concept of “divide and conquer” took center stage.

As construction defect claims began to hit the court system, insurance companies and attorneys adopted the position of “every man for himself.” This especially became a problem on residential projects where there were multiple homeowners involved, for example condo, townhouse and large subdivisions. Homeowner associations sued builders who sued subs who sued suppliers… you know where it went. Insurance companies for the general contractors and subcontractors quickly began to exclude coverage for work done on these types of projects, and as a result developers couldn’t find general contractors or subcontractors who could do the work. Enter the wrap policy.

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