subscribe to ENR magazine subscribe
contact us
careers industry jobs
events events
Dodge Data & Analytics
ENR Logo
Web access will be provided
as part of your subscription.

XL's CapAssure Targets Overlap In Project Coverage

Text size: A A
Can combined general contractor-subcontractor default insurance fill a need?
----- Advertising -----

XL Insurance is seeking its first customer for a new product, introduced in March, that combines contractor and subcontractor default insurance for private construction projects.

Called CapAssure, the subcontractor default insurance part will work the same way as Subguard, the product launched 16 years ago by insurer Zurich North America that currently has virtually all of the subcontractor default insurance market.

Subguard is used to cover about $35 billion worth of subcontracting work each year, according to Nils Sorenson, Zurich's Subguard product manager.

CapAssure, in contrast, will provide coverage for both subcontractor and general contractor defaults.

According to XL Vice President Jason LaMonica, combined subcontractor-general contractor default insurance will provide an opportunity to eliminate any overlap that could occur when subcontractor default insurance is used by the general contractor but when the general contractor must also provides a surety bond to the owner.

In a a hypothetical example of a $100-million contract, $90 million of the work would be performed by subcontractors with about $10 million for the general contractor’s fee for general conditions and other responsibilities.

The surety is likely to “charge you against the full value of the job even if you want $10 million” as the maximum amount of the guarantee, LaMonica says.

Depending on credit profile, the fee that sureties charge to the contractor range from about .5% to 2%.

Another advantage of eliminating surety guarantee on a project is the speed and control for the owner in replacing a defaulted contractor. With surety guarantees, the surety often takes time to investigate a default and to arrange to have the work completed.

“The job can sit idle while [the surety] investigates,” adds LaMonica.

To be fair, a surety has a fiduciary responsibility to make certain that the default of a contractor is justified and that the owner did not terminate the firm for convenience. The investigation is necessary to prevent an unscrupulous owner who decides it needs more money and defaults a contractor and tells the surety to pay.

“Many contractors have experienced the frustration of having to terminate a subcontractor, followed by a lengthy investigation by the bonding company,” according to 2005 summary of subcontractor default insurance by the law firm Peckar & Abramson. “In a complex, time-sensitive project, any delays by a bonding company’s investigation can be extremely expensive.”

Developed by LaMonica with Senior Vice Presidents Bill Mills and Martha Gaines, CapAssure could provide an advantage similar to other default insurance in giving the owner control of the completion of work once a general contractor has defaulted.

As with simple subcontractor default insurance, CapAssure would involve significant deductibles and retention. And as with Subguard, bigger companies are the target market. CapAssure is being directed toward contractors that perform $75 million or more worth of work in a year.

Sorenson, Zurich’s Subguard product manager, says the Subguard product has never been used as a replacement for anything other than subcontractor pay and performance bonds, and will not be in the future. “That’s not our intent,” he says. They are "very different kinds of risks.”


----- Advertising -----
  Blogs: ENR Staff   Blogs: Other Voices  
Critical Path: ENR's editors and bloggers deliver their insights, opinions, cool-headed analysis and hot-headed rantings
Project Leads/Pulse

Gives readers a glimpse of who is planning and constructing some of the largest projects throughout the U.S. Much information for pulse is derived from McGraw-Hill Construction Dodge.

For more information on a project in Pulse that has a DR#, or for general information on Dodge products and services, please visit our Website at

Information is provided on construction projects in following stages in each issue of ENR: Planning, Contracts/Bids/Proposals and Bid/Proposal Dates.

View all Project Leads/Pulse »

 Reader Comments:

Sign in to Comment

To write a comment about this story, please sign in. If this is your first time commenting on this site, you will be required to fill out a brief registration form. Your public username will be the beginning of the email address that you enter into the form (everything before the @ symbol). Other than that, none of the information that you enter will be publically displayed.

We welcome comments from all points of view. Off-topic or abusive comments, however, will be removed at the editors’ discretion.