and can still affect a contractor’s insurance premium, the resolution of the cross claims remains important, and they are still litigated with zeal, even in the presence of a wrap up policy.)

In response, and because litigating issues relating to the priorities of insurance coverage are often as expensive as litigating the underlying cross claims, many general liability insurance policies contain exclusions for projects that are covered by such a wrap up insurance program. In the recent case of Skanska USA Building, Inc. v Harleysville Insurance Company of New York, an appellate court reminds us that these “wrap up exclusions” will be given effect—even where a contractor does not actually participate in the wrap up program.

Background

In 2013, Skanska USA Building entered into a contract with New York University to renovate NYU’s building at 370 Jay St. in Brooklyn, NY. In August 2015, Skanska subcontracted out the electrical scope of work to a subcontractor which, one year later, sub-subcontracted out a portion of that work to JM Electrical, Inc. Skanska maintained a contractor-controlled insurance program (a “CCIP” or “wrap-up”) policy, but neither of the electrical subcontractors were enrolled in that program.

In March 2017, a worker of Sirina Fire Protection was working in the area of JM’s work and was injured. The worker inevitably sued Skanska. Skanska, in turn, tendered its defense to its electrical subcontractor, which did the same to its sub-subcontractor, JM whose carrier denied the tender because JM claimed that it was not currently working in the area of the injured plaintiff’s accident, and JM’s insurance policy only covered losses that arose out of JM’s operations.

Harleysville, the intermediate subcontractor’s carrier, took a different tactic. Harleysville disclaimed coverage based not on the location of the work, but on a wrap up exclusion in its policy. Accordingly, Harleysville argued, no fight need be had over the location of its insured’s work vis-à-vis the location of the injury because even assuming that they happened in the same area, there would still be no coverage because of the wrap up exclusion.

After discovery, Skanska moved for summary judgment against Harleysville, arguing that the cited wrap up exclusion was inapplicable as neither its insured nor JM were enrolled in the wrap up program. Harleysville opposed, arguing that the policy was not limited to excluding enrollees of a wrap up program, but to projects where there was a wrap up program.

Decision

The motion court denied Skanska’s motion for summary judgment, finding that the wrap up exclusion was clear that it applied to any project at which there was a wrap up insurance program. Accordingly, the court rebuffed Skanska’s argument that the enrollment status in the wrap up was relevant, following well-settled law requiring an examination of the specific policy language. In the absence of policy language making the wrap up exclusion contingent on enrollment status in the wrap up program, the court held that the exclusion applied simply because the wrap up program was available. The appellate court affirmed, similarly holding that under the policy language at issue, the subcontractor need not have enrolled in the wrap up—its existence alone was sufficient to trigger the exclusion.

Comment

While the law requires that courts strictly construe exclusions in insurance policies against the carriers that draft them (and in favor of the insureds who pay for coverage), this case serves as a reminder that where policy language is clear, courts will enforce it. Here, the policy language was clear that where there was a wrap up insurance program, the primary general liability policy would not afford coverage—and Skanska was left to defend the underlying personal injury action with its own insurance policy.

Wrap up insurance programs can be beneficial on a larger construction project, streamlining all of the insurance under one program, and putting all of the risk with one carrier. However, since many general liability policies exclude coverage on projects where there is such a wrap up program, it is crucial for contractors to understand what the wrap up program does and does not cover. For instance, will the wrap up cover the insured’s shop operations, or just its work on site? (Using HVAC contractors as an example, would a contractor be covered by its own insurance when it fabricates ductwork in its shop for a wrap up project?) If the wrap up will not cover shop operations, will its primary policy do so, or will it be left uninsured? Further, if a wrap up policy includes a high self-insured retention (the amount the insured must spend in defense or indemnity costs before the wrap up insurance kicks in), can it get its primary carrier to cover the difference?

A contractor’s insurance policy is a difficult enough document to understand in the best of circumstances. When the complexities of a wrap up policy are added, it becomes more crucial to understand what each one covers, and what each one does not, and how one policy can fall by the wayside where the other is present. At the end of the day, a failure to understand the relation between a contractor’s primary general liability policy and a project specific wrap up policy can leave dangerous gaps in coverage. In order to avoid such gaps, contractors would be well advised to consult with construction counsel who is also experienced in reviewing such policies. While the policy language will control, such counsel can point out gaps in coverage and recommend what additional coverage may be necessary to plug such gaps.

About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc., and the Building Contractors Association, and is the Founder of and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series with Mr. Welby.