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.
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.
There are big differences between the traditional way of insuring a large-scope construction job and coverage using an OCIP.
The traditional method:
Owner controlled insurance plan:
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.
In most cases, project owners opt to include additional coverage in the OCIP insurance portfolio. These coverage types frequently include such things as:
The following are typically not covered by OCIPs and would therefore be the responsibility of your contractors and subcontractors:
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.
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.
OCIP plans do have some exclusions regarding who can be included under their blanket coverage. Typically, those excluded will include:
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.
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.
When you purchase coverage through an owner controlled insurance program, you can enjoy several advantages. These include:
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.
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.
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.