Michael Jefferson | Davis Wright Tremaine
Developers and owners often find that obtaining insurance coverage for their construction projects can be confusing and unnecessarily complicated. When dealing with construction projects in excess of $50 million, an Owner Controlled Insurance Program (“OCIP”) (also known as Wrap-Up or consolidated insurance) may be an option for owners to consider when deciding on the optimal insurance coverage.
Under an OCIP, a construction project owner purchases on-site insurance coverages to be bundled (or wrapped up) into one consolidated program that covers (almost) all construction participants for a given project. Typically an OCIP includes workers compensation, commercial general liability, contractor’s pollution liability, umbrella/excess liability, and builder’s risk policies. On the other hand, an OCIP will usually not include professional liability or automobile liability policies. When considering whether an OCIP makes sense for a large construction project, here is a list of factors to consider.
Advantages
- Better control over the purchase of insurance, which should lead to cost savings.
- Less coordination is required to ensure that all construction participants have sufficient insurance coverage.
- Larger coverage limits for subcontractors (e.g., coverage limits of $25 million under the OCIP, in lieu of $1 million or $2 million under their own policies).
- Ease of ensuring that all additional insureds are covered by construction participants’ insurance policies.
- Reduction of possible coverage gaps among the various construction participants.
Disadvantages
- Generally higher deductibles, which a) subcontractors may find unpalatable or b) may require an owner and/or contractor to cover some portion of a deductible in the event of an insurable event, regardless of fault.
- Greater administrative responsibilities for owners in setting up the OCIP and ensuring that all construction participants are enrolled.
- May not cover architects, engineers, or construction participants who perform most of their work “off-site,” such as material suppliers and fabricators (e.g., structural steel or cross-laminated timber).
- Still requires that contractors and subcontractors maintain “off-site” insurance coverage (e.g., automobile liability and off-site commercial general liability).
Most importantly, OCIPs can affect indemnification and defense of claims. Most construction contracts require contractors and subcontractors to broadly indemnify an owner. When an OCIP is in place, a contractor may be more hesitant to accept an uncapped indemnification and defense obligation above what is covered by the OCIP (especially if the contractor’s own insurance has a higher coverage limit than does the OCIP).
Developers and owner should consult with their insurance broker regarding the best coverage options for their construction project.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.