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Owner Controlled Insurance Programs
Over the past several years, there has been an increasing
amount of requests for contractors to participate in owner controlled
insurance programs (OCIPs). These types of programs were previously
limited to extremely large, single-site projects. Lately, smaller
single-site projects and rolling OCIPs covering multiple projects have
been utilized.
Early in the OCIP
process, contractors and their legal and insurance advisors need to be
informed about the mechanics of the program including the details of
the safety and loss prevention program.
The following are some
of the areas for discussion and negotiation:
1.
Watch for discrepancies between the
OCIP and the contract documents. Clarify gaps with the owner and OCIP
Broker.
2.
Make it clear the OCIP will provide
primary coverage. Contractors do not want to be in a position where
their insurance carriers have to participate in a loss before the OCIP
limits have been exhausted.
3.
To coordinate coverage, and to
qualify for an appropriate adjustment, the contractors insurance
carrier should be asked to exclude any exposures that fall under the
OCIP from any calculation of the cost of the contractor's regular
insurance program. Project owners are generally unwilling to pay
their contractors for the cost of maintaining duplicate coverage.
4.
Determine how the owner expects
the contractor to calculate the insurance credits for each line of
coverage included in the OCIP. This usually applies to general
liability, workers' compensation, umbrella, and builder's risk. The
owner should provide a clear formula for calculating any insurance
credits and include working examples.
5.
The contractor should identify
any deductibles and any penalties that the OCIP may contemplate to
determine whether it will be responsible for them.
The
contractor should understand how the OCIP will handle
disputes, mistakes, or changed circumstances. What happens if the
contractor's experience modifier goes up or down? What about the
insurance policies that comes up for renewal during the life of the
project?
Each OCIP outlines many
of these items in the instructions to bidders and requests for
proposals, construction prime contract, insurance manual, and
construction subcontracts. Contractors should not hesitate to ask their
legal and insurance advisors to review and advise as necessary.
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