The Benefits & Pitfalls of an Owner Controlled Insurance Program
If you are a general contractor or subcontractor engaged in high density residential construction in California, it is important to understand the benefits and disadvantages of an owner controlled insurance program (OCIP) for your project. The experienced lawyers in the Bowles & Verna Construction Law Practice Group are always available to answer any questions your may have regarding OCIPs and construction insurance in general.
OCIPs—What Are They?An OCIP is a centrally managed insurance program purchased by the property owner that typically combines many different kinds of construction insurance into a single policy from a single insurer. The types of insurance typically include commercial general liability, workers compensation, builders risk coverage and excess liability coverage.
Under an OCIP, primary control over insurance issues throughout the course of construction rests with the owner or its OCIP manager.
By purchasing an OCIP for the project, contractors and subcontractors do not have to provide their own insurance or deal with the associated costs of insurance in their construction bids. In exchange for participating in an OCIP, a contractor provides the owner with OCIP credits.
Further, by essentially buying insurance in bulk, the owner can leverage its buying power achieve significant premium reductions compared to the costs of individual insurance plans for each contractor. Owners can also leverage their buying power by obtaining OCIP coverage for a series of projects.
Pros and Cons of OCIPs - How Are Contractors Affected?
There are many benefits and disadvantages to OCIPs that contractors and subcontractors should consider prior to contracting for any project that will utilize an OCIP:
Benefits for Contractors and Subcontractors:
- Overall reduced insurance costs;
- Access for smaller general contractors and subcontractors to work on larger scale projects where previously the insurance costs of participation were not realistic or manageable;
- Higher insurance limits than they would normally be able to obtain;
- A uniform and standardized safety program administered by an Owner’s representative which, if well thought out and run properly, can reduce long tail construction defect exposure;
- One carrier defends all enrollees in a lawsuit which can, among other things, dramatically reduce litigation costs; and
- OCIP enrollees can obtain proof of insurance more quickly since all insurance certificates will come from a single source.
Disadvantages for Contractors and Subcontractors:
- Compliance with the OCIP safety program is more burdensome and requires more attention that the typical general liability policy; and
- Contractors can experience gaps in their insurance coverage that can create additional difficulties when putting together subcontracts.
Careful review of an OCIP, and all of the contract and subcontract provisions relating thereto, is critical to ensure you, as a contractor, are adequately protected. If you are a general contractor and/or subcontractor that would like assistance in reviewing an OCIP or related contractual documents, the experienced lawyers in our Construction Law Practice Group are here to help. Contact us by calling (925) 935-3300. Our California construction lawyers can answer your questions today.
For additional information regarding the latest news and legal developments impacting the California construction community, please visit our construction law blog, The Critical Path, at www.californiaconstructionlaw.com.
“With 24 lawyers and a total of 50 employees on our team, we have the resources to do battle with major insurance companies and corporate defendants.” Attorney Michael Verna