For those who may be unfamiliar with OCIPs (Owner Controlled Insurance Program), the concept is quite simple. Instead of having subcontractors bring along their own liability insurance to a given construction project (usually a large-scale project), a general contractor and/or developer will purchase a job-specific commercial liability insurance policy that covers everyone who works on the OCIP construction project.

By the way, “OCIP,” “CCIP,” and “Wrap-Up” are basically synonymous. An OCIP is an Owner Controlled Insurance Program, a CCIP is a Contractor Controlled Insurance Program, and Wrap-Up just means it could be either one.

In any event, the essential structure of each these programs matches the brief description of the first paragraph.

In theory, having an OCIP program in place is supposed eliminate the owner and/or general contractor’s concern about potential issues with subcontractors’ liability insurance, and OCIPs usually save the general contractor a fair amount of money up front.

OCIPs can also be an effective tool for insuring a single project (including multi-phase projects) that insurers may typically exclude from conventional commercial liability policies. One example would be residential developments that include condos or townhomes.

In addition, having all the contractors and subcontractors insured under the same policy can help simplify the claims experience in certain scenarios.

The pros of this are as listed above. Premium savings for the owner and/or general contractor, not worrying (though there may be good reason and they just don’t know) about the quality of subcontractors’ coverage, less bickering when a claim is filed, and in addition the owner and general contractor may have some say in what the policy will or will not cover since each of these policies can be somewhat customized. 

All of that sounds great, but all of those things are like the pretty wrapping covering up the ugly that is inside. The cons are often quite bad. In my experience, OCIPs are often severely underinsured and the OCIP policies I have seen contain significant gaps in coverage.

Why has this not been at the forefront of insurance discussions? Large claims are not common. Most OCIP projects do not have catastrophic claims, and as a result folks don’t realize just how much they may be rolling the dice.

One example would be the Millennium Towers in California. I know from an attorney in the area who was involved there that every entity who did any work on those towers is/was scrambling because they’ve all been dragged into a massive claim and the OCIP limits were quickly exhausted.

As an example of just how badly some OCIP projects are underinsured, an OCIP policy I recently reviewed insures a project with a total replacement cost of 1 billion dollars. This particular project has 5 phases, each phase having an estimated replacement cost of 200 million dollars.

Each phase also has its own liability and umbrella policies for a total of 50 million dollars of insurance per phase.  Anyone with first grade-level math skills can see this project is underinsured. But what comes next is far worse. 

These policies all have an endorsement that limits what they pay even further.  This endorsement essentially says that the most that will be paid for any one claim is 50 million dollars, regardless of how many phases of construction are affected and how many of the five policies ought to apply. 

I am no mathematician, but it occurs to me that leaves roughly 950 million dollars unaccounted for if a catastrophic claim occurs after the project is completed and for some reason the buildings have to be rebuilt.

Potentially insufficient limits notwithstanding, the premium credit system can often be misunderstood/misapplied and either the general contractor does not get the full amount of credits they are due or the subcontractors overpay and no one may ever find out. Money down the drain, left on the table, or wherever you like it, but in any case not where it should be.

In addition to often having lousy limits and possibly misapplied credits, many times OCIP policies have exclusions that can adversely affect the participants on the job. These policies often contain Total Pollution and Total Silica or Silica-Related Dust exclusions, Bacteria/Fungi Exclusions, and they may contain very restrictive exclusions like Continuous or Progressive Damage exclusions, etc., etc.

What’s worse, the standard “Your Work” exclusion found in base ISO commercial general liability and forms is sometimes left unaddressed, and on an OCIP project that could effectively exclude the entire project.

An important area of caution: if you are working on an OCIP project, be sure that property damage to the project caused by subcontractors during the course of construction is covered either on the OCIP or the applicable builders risk. It could occur that both those policies will exclude such damage, and that damage is not uncommon in construction.

I have even seen where insurance companies that write OCIP policies will manuscript their own exclusion forms that are far worse than the standard ISO exclusions. Worse still, it’s highly unlikely that anybody but the insurance company is aware these exclusions are a part of the OCIP policy. This increases the likelihood that a claim simply will not be covered, and the participants on the OCIP job will be unaware of the gaps in coverage until it is too late.

Another pitfall of OCIP programs can be found in the very nature of the idea. Every single contractor working on the OCIP project uses the same insurance. Seeing as most OCIPs seem to be underinsured purely from the replacement cost value of the project, it would not be a stretch to imagine the limits could be used up by just two or three of the named insured parties leaving everyone else with zero dollars available in the event they have a covered claim.

In addition, many commercial insurance liability policies exclude OCIP projects, so if the OCIP policy cannot or will not cover a claim it is not uncommon for the contractor’s commercial insurance to also deny the claim which leaves that contractor or subcontractor completely exposed to pay the claim out of pocket. 

Furthermore, OCIP participation is almost always required by the job contract. This means if a subcontractor who has broader coverage than the OCIP policy provides wishes to work on the job, that subcontractor must agree to accept narrower OCIP coverage in order to do so. How could that possibly be misconstrued as beneficial for anyone?

Last, the OCIP contract itself is usually entirely slanted in favor of the owner and general contractor. The last OCIP contract I reviewed essentially said (among other things) that the owner and general contractor and the corresponding insurance representatives and legal representation could lie to a subcontractor’s face about the coverage provided by the OCIP policy to manipulate that sub into taking the job, and would be held harmless for doing so. 

If you are a contractor or subcontractor who works on OCIP jobs, you may have very little say in regard to the quality of the insurance provided by the OCIP policy. But if you have a good risk manager who can speak the language and communicate to the general contractor and the insurance personnel who write and oversee the OCIP just how bad the insurance policy really is you stand a much better chance of getting the coverage you need.

My advice: if you do not have a sharp risk manager, stay away from OCIP projects. Taking those jobs without a knowledgeable advisor at your side is a big roll of the dice. The jobs may be large and lucrative, but you could quickly lose all the money you made and then some if the OCIP policy provides lousy (or no) coverage. Just ask the folks who worked on the Millennium Tower in California what they think of their OCIP coverage and limits.

I realize some jobs cannot be insured without an OCIP in place, and for those jobs you will have little choice but to sign up.

In that event, scrutinize the policies (the manual is WORTHLESS) before you sign the job contract – – – never after.

Again, OCIPs are not all bad and there can be benefits.

For instance, a loss on an OCIP insurance policy does not show up on your company loss runs and that could be favorable for your business at renewal.

There may be other reasons OCIPs seem appealing that I failed to list in this article, but in my opinion none of those will make up for risking a catastrophic claim that is not covered.