Owner-controlled insurance program

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An owner controlled insurance program (OCIP) is an insurance policy held by a property owner during the construction or renovation of a property, which is typically designed to cover virtually all liability and loss arising from the construction project (subject to the usual exclusions). [1]

Contents

Although an OCIP may be set up in a variety of ways, [2] a policy package usually contains, at a minimum, Commercial General Liability (CGL), excess liability insurance, workers' compensation (WC) and employers' liability (for regular civil actions arising from WC injuries). [1] [3] Depending on the project, there may be endorsements providing additional coverage such as Contractors Pollution Liability (CPL), Builders Risk Insurance, terrorism insurance and umbrella insurance. OCIPs are also frequently referred to as "wrap-up insurance" or "wrap policies" in the insurance industry. [1] [4]

The traditional method for insuring construction consisted of each general contractor (GC) and subcontractor obtaining their own insurance policies from any provider of their choosing. In turn, they would build their policy premiums into their cost structure, which then became part of their bids. This meant that by accepting a GC's successful bid, the property owner was indirectly paying for administrative overhead at dozens of separate insurance brokers and insurance companies. [3]

In OCIP, all construction, materials, hazard, workers' compensation, environmental, terrorism, and other building-related insurance is purchased by the property owner as part of a single policy from a single insurer. Thus, property owners benefit from OCIP in that all insurance costs are collected into a single policy premium, rather than embedded inside the bids of dozens of contractors and subcontractors, and they have direct control over administrative costs by dealing with a single broker and insurer. In exchange, all participating contractors are expected to reduce their bids since they are no longer bringing along their own insurance. [1] A large property owner that always has many construction projects in progress at any particular moment—like a real estate investment trust, an urban school district, or a state university system—may attempt to realize additional savings by obtaining a single OCIP to cover multiple projects.

A Contractor Controlled Insurance Program (CCIP) is similar to an OCIP except that the general contractor (GC) or construction manager sponsors the insurance program. [3] There have also been hybrid programs combining features of an OCIP and CCIP on a loss-sensitive basis; that is, the property owner and GC share in the expected savings, but they also agree to share any additional costs if losses are higher than expected. [5] A Developer Controlled Insurance Program (DCIP) is also similar to an OCIP but might not include WC; instead, a DCIP provides CGL, umbrella and excess mainly for protection against construction defect claims.

OCIP advantages to owners over traditional insuring methods

An OCIP may provide a number of advantages to a construction project owner, including: [6]

OCIP disadvantages to owners over traditional insuring methods

Possible disadvantages of an OCIP include, [7]

OCIP advantages to contractors over traditional insuring methods

As compared to traditional insurance, an OCIP may offer benefits that include:

OCIP disadvantages to contractors over traditional insuring methods

Possible disadvantages to contractors that result from an owner controlled insurance program include:[ citation needed ]

Related Research Articles

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Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.

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A fidelity bond or fidelity guarantee is a form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

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Stop-loss insurance is insurance that protects insurers against large claims. Stop-loss policies take effect after a certain threshold has been exceeded in claims.

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In insurance policies, an additional insured is a person or organization who enjoys the benefits of being insured under an insurance policy, in addition to whoever originally purchased the insurance policy. The term generally applies within liability insurance and property insurance, but is an element of other policies as well. Most often it applies where the original named insured needs to provide insurance coverage to additional parties so that they enjoy protection from a new risk that arises out of the original named insured's conduct or operations. An additional insured often gains this status by means of an endorsement added to the policy which either identifies the additional party by name or by a general description contained in a "blanket additional insured endorsement".

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Commercial general liability insurance is a broad type of insurance policy which provides liability insurance for general business risks.

References

  1. 1 2 3 4 Mastin, John M.; Nelson, Eric L.; Robey, Ronald G. (2020). Smith, Currie & Hancock's Common Sense Construction Law: A Practical Guide for the Construction Professional (6th ed.). Hoboken, New Jersey: John Wiley & Sons. p. 547. ISBN   9781119540175 . Retrieved January 15, 2024.
  2. "Owner Controlled Insurance Program Policy". Federal Highway Administration. U.S. Department of Transportation. 7 October 2002. Retrieved 28 September 2017.
  3. 1 2 3 "Owner-Controlled Insurance Programs (OCIP)". Construction Coverage. 2018-10-04. Retrieved 2019-02-25.
  4. Olson, Robert J. (2006-07-02). "The OCIP or Wrap Policy". Insurance Journal. Wells Media Group, Inc. Retrieved 28 September 2017.
  5. "Construction Project Controlled Insurance Program (CIP)" (PDF). willis.com.
  6. "Owner-Controlled Insurance Programs (OCIPs)". Alliant Insurance Services, Inc. Retrieved 28 September 2017.
  7. "What is an OCIP". DSS Development Solutions Services. 2011. Retrieved 28 September 2017.