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Owner Controlled Insurance Programs |
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Controlled Insurance Programs, often referred to as "Wrap-Ups", have played a role in the construction community for many years. There are two basic programs that fall into this category, one being the Owner-Controlled Insurance Program (OCIP) and Contractor-Controlled Insurance Program (CCIP). Their function is to provide various insurance coverage's to all contractors and subcontractors working at a job site. The primary difference between these two programs is that one is coordinated by the owner of the project/site and the other is coordinated by a general contractor, typically, selected by the owner.
These programs can be advantageous in many ways as it relates to providing better protection for the owner, lowering construction cost as well as improving the quality of risk management and safety at the jobsite. These programs may include several lines of coverage or may be as simple as providing workers' compensation only. However, serious gaps in coverage can arise for participants when liabilities are included as part of the program.
When you are a contractor or subcontractor working under a wrap-up, it is common for the administrator to reduce the total cost of your contract by an amount equal to the premiums you would normally pay under your insurance program. This is to cover your portion of the insurance they are providing through their policies. To avoid paying duplicate premiums, most companies exclude the work from their insurance policies to ensure that the exposure is not included in their audit at the end of the year. In doing this the wrap-up participant eliminates the potential for their insurance carrier to provide defense and/or indemnity on their behalf for any contractual obligations that exist for work performed under the program. With that said, the participant would have no coverage for the indemnity agreement that remains in the contract where coverage is being provided by a wrap-up. In addition, there are a number of carriers that incorporate an automatic exclusion in their basic policy form for work performed under a wrap-up.
It is possible to cover these contingent exposures if your insurance company will provide it. In many cases insurance companies offer Differences In Conditions (DIC) coverage which can be endorsed to your policies at a fraction of the normal cost. This coverage serves to protect the insured for things not covered or inadequately covered by the insurance provided under the wrap-up.
Wrap-ups that include workers' compensation coverage only, are less of a problem since no third party liability exposures are at risk. However, the participants experience rating modifier (EMR) may suffer if the payroll is not reported properly so that it can be included in its calculation. This could have a substantial impact on the EMR, especially if this payroll represents a large portion of the work performed annually by the contractor/subcontractor.
The vast majority of these concerns can be overcome with proper risk management if done prior to finalizing a contract of this nature. Below is a list of basic issues that should be addressed in most cases:
* Do any of your insurance policies specifically exclude work performed under a wrap-up?
* What are the terms and conditions of the policies provided by the wrap-up?
* Is (DIC) coverage available from your insurance company?
* Can the cost of the DIC coverage be included as part of the contract?
* Will the payroll under the program be reported so that it can be included in your EMR?
* Does the indemnity agreement need to be amended?
These programs can be very complicated and difficult to navigate through the intricate language associated with them. It would be wise to have your attorney, along with your insurance advisor, review all documents involving wrap-up programs before entering into the agreement. They should be able to identify added exposures that may put your company at risk.
We welcome any questions you may have regarding the above information. You can contact me at 281.570.2000 or visit our website at www.StrategicIns.com
This article was provided for informational purposes only and should not be considered in any way as legal advice. |
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