OGC Op. No. 07-07-02

The Office of General Counsel issued the following opinion on July 3, 2007, representing the position of the New York State Insurance Department.

RE: Wrap-up policy not subject to audit adjustment

Questions Presented:

1. May an owner or a contractor recalculate the cost of insurance premiums by increasing the credit applied to a bid to be paid by a contractor or subcontractor under a wrap-up insurance policy covering a non-public entity project, when the contract between the owner or contractor and the contractor or subcontractor has a clause stating that the policy is subject to audit and an increase in the premium cost after adjustment to such actual audited figures?

2. If the aforementioned audit results in a decrease in the insurance premium, is the owner obligated to refund such savings to the subcontractor?


1. No. Pursuant to N.Y. Ins. Law § 2505 (McKinney 2006), it is impermissible to increase the credit applied to a bid to account for an audit increase in the wrap-up insurance premium, even if the contract expressly permits such an adjustment.

2. No. However, there is nothing in the Insurance Law or regulations promulgated thereto that prohibits the owner or contractor from voluntarily refunding such amount of return premiums after audit.


The inquiry is of a general nature, without reference to particular facts.


Wrap-up insurance refers to a policy, or series of policies, written to cover a specific project that insures all of the persons and entities working on such project.

It is well-established that an insurance contract may not override the provisions of a statute (see, e.g., Office of General Counsel Opinions dated April 20, 2004 and May 17, 2005). Insurance Law § 2505(a) provides that in any building or construction contract bid, other than a public construction contract governed by Insurance Law § 2504, no contractor or subcontractor shall be required to pay premiums or related charges for policies of insurance or surety bonds specified in connection with such contract on policies or surety bonds acquired by any owner or other contractor. Section 2505(b) states that the owner or contractor is not prohibited from providing all the insurance policies or surety bonds required by the contract without reimbursement from the contractor or subcontractor, or from requiring the contractor or subcontractor to include a credit in its bid that reflects the amount the bidding contractor or subcontractor would otherwise add if providing its own insurance.

Insurance Law § 2505 is intended to establish a balance between the owner or contractor on the one side, and the contractor or subcontractor on the other, by providing the owner or contractor with the ability to determine whether it will utilize a wrap-up. Given the plain text of the statute, an owner or contractor may not seek an after-the-fact adjustment to increase the premium. To do otherwise would circumvent the statutory prohibition against being reimbursed by the contractor or subcontractor for the insurance costs when an owner or contractor purchases insurance.

Nevertheless, there is nothing in Insurance Law § 2505 or regulations promulgated by the Department that precludes an owner or contractor from voluntarily refunding savings to a contractor or subcontractor where an audit reveals lower actual insurance costs, which in turn may be passed on to the contractor or subcontractor as a lower credit against the bid. See Office of General Counsel Opinion dated January 20, 2005.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.