�Wrap-Up Insurance for the Capitol Visitor Center, B-290162, October 22, 2002

B-290162 Oct 22, 2002 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights You asked whether your office is authorized to use appropriated funds to procure wrap-up insurance that would cover (1) the government's risks and (2) the risks of contractors. The general rule is that the federal government self-insures its own risk of loss. 21 Comp. The rationale underlying the rule is that the magnitude of the government's resources makes it more economical and advantageous for the government to carry its own risks than to have them assumed by private insurers. 19 Comp. If you determine that purchasing wrap-up insurance is reasonably necessary or incident to the accomplishment of the construction of the CVC and demonstrate that the rule's rationale does not apply to your situation. View Decision Wrap-Up Insurance for the Capitol Visitor Center, B-290162, October 22, 2002 Mr. Alan M. Hantman Architect of the Capitol Dear Mr. Hantman: This responds to your letter requesting our opinion on questions related to the purchase of wrap-up insurance for the Capitol Visitor Center (CVC). /1/ In general terms, wrap-up insurance consolidates all major insurance coverages for various entities into one insurance policy. Specifically, you asked whether your office is authorized to use appropriated funds to procure wrap-up insurance that would cover (1) the government's risks and (2) the risks of contractors, designers, and consultants in constructing the CVC. Because you did not submit for consideration any particular insurance policy or a justification based on a cost-benefit analysis, we can only answer your questions in general terms. The general rule is that the federal government self-insures its own risk of loss. 21 Comp. Gen. 928, 929 (1942); B-237654, Feb. 21, 1991. The rationale underlying the rule is that the magnitude of the government's resources makes it more economical and advantageous for the government to carry its own risks than to have them assumed by private insurers. 19 Comp. Gen. 211, 214 (1939). For the reasons stated below, if you determine that purchasing wrap-up insurance is reasonably necessary or incident to the accomplishment of the construction of the CVC and demonstrate that the rule's rationale does not apply to your situation, we would not object to the use of appropriated funds to purchase wrap-up insurance covering both the government's risks and the contractors' risks for the CVC project. To meet this burden, you could demonstrate that the use of wrap-up insurance would result in a savings or that a benefit, not otherwise obtainable, would be gained through the use of wrap-up insurance. BACKGROUND Insurance is a major cost component in construction contracts. /2/ Construction insurance has experienced large rate increases over the past two decades partly due to general market forces and the adversarial nature of the construction industry. /3/ The terrorist attacks of September 11th compound the problem. /4/ In traditional insurance programs, project owners, contractors, and subcontractors independently purchase their own insurance to protect themselves from financial loss. There are alternative insurance programs that offer potential savings to owners of large construction projects. One such alternative is commonly known in the insurance and construction industries as wrap-up insurance. Wrap-up insurance, in contrast to traditional insurance, is when the project owner purchases one policy and "wraps-up" the multiple insurance coverages for various entities into the one policy. /5/ The objective of wrap-up insurance is usually to reduce project costs. While project costs may be reduced, the owner of the wrap-up policy incurs risks and management costs previously borne by the contractor. GSA reports that coverage normally provided under wrap-up insurance includes workers' compensation, commercial general liability, excess indemnity (umbrella), and builder's risk property insurance. /6/ Coverage sometimes provided under wrap-up insurance includes asbestos abatement, environmental and professional (errors and omissions coverage) liability. /7/ Coverage not normally provided under wrap-up insurance includes automobile insurance, construction equipment, tools and personal property, and on-site offices and temporary facilities. /8/ Your submission does not describe what coverages you anticipate including in your wrap-up insurance program. There are advantages and disadvantages to having one wrap-up insurance program administered by a single insurance carrier. Major advantages include savings from buying insurance in volume, eliminating duplication in coverage, handling claims more efficiently, reducing potential litigation, and enhancing workplace safety. /9/ Disadvantages include requiring project owners to invest more time and resources in administration and possibly paying large premiums at the beginning of the project.