Owner Controlled Insurance Programs

Traditionally, insurance for construction projects involves the General Contractor and Subcontractors obtaining their own insurance policies.  The premiums for these coverages are built in as part of their bids.  As a result, the property owner pays a premium for overhead of dozens of separate insurance brokers and insurance companies.

An Owner Controlled Insurance Program (OCIP) provides an alternative to this traditional method of insuring a construction project.

In the case of an OCIP, the insurance policy is held by the property owner during the construction.  This policy is designed to cover virtually all liability and loss arising from the project.  Such a policy contains, at a minimum, commercial general liability (CGL), excess insurance, Worker’s Compensation, and employer’s liability insurance.   Additional coverages may be added by endorsement such as contractor’s pollution liability and builder’s risk insurance.  OCIPs are often referred to in the insurance industry as “wrap policies.”

OCIPs offer advantages to property owners over traditional insuring methods, including:

1. Lower overall insurance cost to the property owner;
2. Broker and underwriting insurer likely to enforce stringent safety and loss control procedures;
3. Quicker issuance of insurance certificates for contractors;
4. Improved risk control and claim handling;
5. Direct input into policy design and structure to avoid coverage gaps or insufficient amounts of coverage.

While they are advantages, there are also possible disadvantages to property owners:

1. Increased administration burden for the broker underwriter;
2. Increased accounting costs;
3. Potential for Contractors to claim non-project injuries which are not actually covered under the OCIP;
4. Contractor may have less incentive to control losses;
5. Less total coverage may be available to compensate owner when project manifests multiple defects with multiple independent causes;
6. In some OCIPs, defense costs may erode policy limits, unlike conventional CGL policies.

In considering insurance coverages for a construction project, a property owner should consider and investigate the availability of an OCIP for the project and its desirability for the specific application.