An owner-controlled insurance program (OCIP) combines coverage for all liability that arises from a construction project into one program. These consolidated insurance programs (sometimes referred to as “wrap-up” insurance programs) extend coverage to several parties and allow property owners and/or contractors to combine coverages that may otherwise be provided under separate policies into a single insurance plan that covers the stakeholders in an entire construction project from beginning to end. The benefits of owner-controlled insurance programs include cost savings for the contractor and/or property owner, more individualized risk management, and encouraging more efficient processing of claims.
How Do Owner-Controlled Insurance Programs Work?
Owner-controlled insurance programs are complex insurance products originally designed for large-budget commercial construction projects. However, in recent years, OCIPs have grown in popularity and are sometimes used for smaller projects as well. In the typical construction insurance scenarios, each contractor or subcontractor has its own insurance policies to cover its own liability. In an OCIP, the major stakeholders of a project (e.g., property owner, developer, general contractor, and subcontractors) are named insureds in a single policy.
Establishing an owner-controlled insurance program is more complicated than establishing typical construction insurance coverage. Common coverages that may be combined into an owner-controlled policy are commercial general liability, workers compensation, builder’s risk, excess liability, professional liability, and subcontractor default insurance. The policy also may include completed operations coverage, and other optional coverages (e.g., environmental liability, and industry-specific liability policies). These policies must be organized and established before any construction begins. Coverage for all the program participants begins before the first day of the project and most owner-controlled insurance programs last for several years. Coverage under an OCIP often extends beyond the completion of the project in order to provide coverage for claims that may be made years later.
Though there are many advantages to OCIPs, there are also some drawbacks. Some coverages often are excluded from the programs (e.g., commercial auto insurance, off-site contractors, indirect costs for designers and contractors, third-party vendors, etc.). OCIPs also carry with them added administrative costs to establish and maintain the program; owners must draw upon their own human, accounting, and legal resources to create and manage the OCIP. Because the OCIP wraps coverage for most stakeholders (e.g., owner, general contractor, subcontractors, etc.) into a single policy, conflicts may arise among these stakeholders that may complicate the insurance picture. Contractors working under an owner-controlled insurance program may be less motivated to limit losses because their own policies are not likely to be affected by claims. Finally, the amount of coverage under the OCIP may not be adequate, given the extended policy period and the number of stakeholders covered under the policy.
Owner-Controlled Insurance Programs: How We Can Help
The insurance coverage attorneys at Payne & Fears have years of experience representing stakeholders in large-exposure construction projects, including evaluating the benefits and disadvantages of owner-controlled insurance programs and resolving coverage issues arising out of them. We are familiar with the terms and conditions of different types of OCIPs and can help businesses design and implement an OCIP for their projects. We also evaluate proposed OCIPs for potential problems before they are implemented.