1. What Does OCIP Stand For?
OCIP stands for "owner controlled insurance program." It protects the project owner and is designed to coordinate general liability coverage for all eligible parties working on a specific construction project.
Construction jobs come with a number of liability risks. A child may be playing at the worksite and become severely injured; a demolition crew may inadvertently damage a neighboring building; a framing contractor may make an error that results in unstable flooring. In each of these cases, lawsuits can affect several parties on the construction crew. A subcontractor may be sued, but that lawsuit can also go up the chain of command to the contractor who hired him to the project manager, to the building owner. An OCIP can help protect all parties under a blanket insurance policy.
In the past, OCIP (or “wrap-up insurance”) was used only on large construction projects that exceeded $50 million in costs. Today, however, they are frequently used by project owners on smaller residential construction and renovation jobs. Because this blanket protection coverage is a relatively new way to cover residential construction and renovation jobs, many project managers have questions about it and how it works. Listed below are some of their most frequently asked questions.
Before a large construction or renovation project begins, the property or project owner can work with a general contractor to design an owner controlled insurance program (OCIP). This will cover a wide range of liability risks and losses that may occur in the course of completing the project. This insurance plan will provide blanket coverage for the contractors and subcontractors working on the project to ensure that all interested parties have sufficient coverage against liability losses.
This type of coverage used to be limited to very large construction projects, but due to an increase in litigation against construction defects, OCIPs are now available to smaller residential construction projects as well. Rather than requiring several different insurance companies to name the property owner or general contractor as a named insured on several different policies, it enables all workers on a project to be covered under the same policy, often at a significantly lower cost.
2. With an OCIP, who pays?
Many people are confused about how payments and deductibles are handled under an OCIP.
With an owner controlled insurance plan, the property owner and the general contractor will work out the terms of coverage together. The general contractor will then purchase and pay for the OCIP policy. Contractors and subcontractors on the job will be offered lower rates for their work in exchange for not having to provide their own liability insurance coverage.
In the event that a claim is filed, the project manager will be the contact person for the insurance company and will ultimately be responsible for paying any deductibles. Whether or not the subcontractor who caused the problem will be required to cover all or part of the deductible amount will be worked out prior to the start of the job when the contract is written up.
3. How does OCIP insurance differ from traditional coverage?
There are big differences between the traditional way of insuring a large-scope construction job and coverage using an OCIP.
The traditional method:
- The general contractor and each subcontractor purchase their own commercial general liability policies for the job.
- Each subcontractor is required to name the general contractor and the developer as an “additional insured” on their policy.
- If there are several subcontractors on the job, this can mean that several different insurance companies are covering the project.
- In the event of an accident, the various insurance companies may be tied up in court fighting out which of them is responsible for covering the damages, and this can eat into a lot of the coverage availability for the interested parties.
- Because so many different insurance companies include the project owner as the named insured, the project owner has a very high amount of coverage.
Owner controlled insurance plan:
- All contractors and subcontractors on the job are covered by the same insurance company under the same blanket policy.
- Because all parties are covered by the same insurer, this reduces legal and litigation costs in the event that a claim is filed, and this translates to lower coverage rates for those who hold the policy.
- Also, because the claims are handled by a single administrator, they tend to be resolved faster and more easily than with traditional coverage.
- The project owner can control how much coverage is available for the construction job.
4. What does OCIP cover?
All policies will include commercial general liability coverage and workers' compensation insurance to protect the property owner and other interested parties on the policy from liability losses.
- Commercial General Liability Insurance (CGL): This is designed to cover a wide range of liability risks, including third-party injuries on the worksite and property damage caused by workers on the project.
- Workers’ Compensation Insurance: This is required in most states and is regulated by the laws of the state in which you operate. It is designed to cover lost wages and the cost of treatment associated with work-related injuries and illnesses. When included in an OCIP, it will cover all enrolled contractors and subcontractors on your project.
In most cases, project owners opt to include additional coverage in the OCIP insurance portfolio. These coverage types frequently include such things as:
- Pollution Liability Insurance: This can cover the costs associated with chemical spills, the emission of toxic gases and fumes, and other pollution-related incidents that may occur in the course of completing your project. These costs may include those associated with lawsuits brought about by resultant illnesses and injuries as well expenses related to clean-up.
- Builders Risk Insurance: This is designed to cover damages to the building under construction caused by such things as accidental fires or severe weather events.
- Professional Liability Insurance: This covers against losses resulting from errors in judgement and other professional mistakes by named insureds in professional positions.
- Umbrella Insurance: The liability coverage limits offered by many commercial insurance policies are not always high enough to fully cover commercial enterprises against all of their potential risks. To ensure that you have a sufficient amount of liability coverage, you may want to increase your coverage by supplementing your OCIP insurance with umbrella coverage.
5. What is not covered by OCIP plans?
The following are typically not covered by OCIPs and would therefore be the responsibility of your contractors and subcontractors:
- Commercial Vehicle Liability Insurance: Many construction projects require the use of specialty construction vehicles. These vehicles will require coverage under a commercial vehicle insurance policy.
- Commercial Property Insurance: This is designed to cover loss or damage to the commercial property (such as tools and machinery) used on-site by all contractors and subcontractors named on your policy.
- Inland Marine Insurance: This is designed to cover tools and machinery while they are being transported to and from the job site.
Project owners who are uncertain about their risks or coverage options may benefit from speaking with an independent insurance agent who is familiar with commercial insurance coverage.
6. Who is included as an eligible participant?
In most cases, those eligible to be covered by an owner controlled insurance program include all contractors and subcontractors on a particular on-site construction job. This would include subcontractors who are hired by subcontractors.
7. Who is excluded from OCIP coverage?
OCIP plans do have some exclusions regarding who can be included under their blanket coverage. Typically, those excluded will include:
- Vendors, suppliers, and fabricators
- Hazardous materials transporter and contractors
- Architects, surveyors and engineers (not covered for professional liability coverage only)
- Material haulers and truckers
- Subcontractors who are not performing their duties on-site
It is important that you explain the full scope of your project to your insurance agent so that exclusions may be identified early and alternative coverage options can be considered.
8. How long does OCIP coverage last?
Many people think that once a project is complete, the OCIP plan is too. However, these plans frequently include an extended coverage period. That way, if it turns out that errors were made in the construction phase, and they lead to later damage, the project owner will still have coverage against lawsuits and financial responsibilities related to the resultant damages.
9. What are the advantages of having one master general liability policy?
When you purchase coverage through an owner controlled insurance program, you can enjoy several advantages. These include:
- Reduced administrative costs result in lower coverage rates.
- Participants under the plan have uniform coverage and liability limits.
- Because all parties on the contract are represented by the same administrator, claims are processed more quickly.
- Project owners can rest assured that subcontractors are properly covered against liability risks.
- With all participants represented by the same insurance company, you can get stronger legal defense in the event of a liability lawsuit.
These advantages explain why these plans are growing in popularity for residential contraction projects that, until recently, were not eligible for this type of coverage.
11. Are there disadvantages to coverage under an OCIP?
The main disadvantage of an owner controlled insurance program is for the contractors and subcontractors covered by the policy. This is because these contractors will already have commercial liability and worker’s compensation coverage. Working under an OCIP will require them to notify their insurance company not to provide coverage for the time they spend on this particular job. Otherwise, they will end up paying for insurance that they do not need while taking a discount for the work they do on the job that is OCIP insured.
For example, workers’ compensation insurance is covered by the OCIP. If a contractor does not notify his insurance company that the job is covered by another policy, the payroll from this job will be included in what he owes for his workers’ comp policy, raising his premium rates. Many contractors and subcontractors who have never worked under an OCIP policy are not aware of this provision and end up paying more than they need to for the commercial insurance coverage.
12. Is OCIP insurance right for me?
If you will be managing a large construction project with several contractors and subcontractors, OCIP insurance may be the best way to ensure that you and those working on the project are properly covered against your liability risks. Trusted Choice® agents who are familiar with commercial insurance products can help you determine if such a plan is right for your particular project. They can review your coverage options and help you compare the coverage and costs of an OCIP against those associated with traditional coverage plans. Find an agent near you to learn more.