The bigger the project, the bigger the profits—and the bigger the risk. That’s why many insurance policies have something called the “condo-exclusion,”which denies coverage to projects that contain more than a set number of units.
Of course, multi-unit properties are still being built, and contractors aren’t jumping into the construction process uninsured. So, what are they using to protect themselves?
Owner-controlled insurance programs.
What Are Owner-Controlled Insurance Programs?
Owner-Controlled Insurance Programs (OCIPs) are often called wrap policies. This type of coverage is specific to a single project, picking up where standard policies fail to cover. It’s a general liability policy that covers job site risks and completed operation exposures—damages or injuries incurred after operations cease.
Why Are OCIPs Important?
With multi-unit projects, the risks of experiencing some form of litigation related to the project are significant—so much so that some estimate that once a project reaches 50 units, being served a lawsuit is all but guaranteed. At the same time, it’s not feasible for you as a contractor to turn down all multi-unit work. OCIPs allow you to complete the projects that come your way while still remaining profitable, even in the face of a court case.
Who Takes Out an OCIP?
Technically, OCIPs are taken out by the owner of the property, not the contractor. When the contractor holds the policy, it’s called a Contractor-Controlled Insurance Program (CCIP). Aside from their name and who pays the premium, these policies are essentially the same. If the owner refuses to take out the policy, it is critical that you, the contractor, do so.
What Projects Benefit From OCIPs?
While in the past, this coverage was only meant for projects valued at $100 million or more, most multi-unit projects in California should have a wrap policy in place if they are either meant to be condominiums or could be converted into them. Other types of projects that benefit from an OCIP are tract homes and apartments—though these tend to be covered under most general policies.Be certain to check with your insurance company to determine your needs.
What Is Covered Under an OCIP?
As OCIPs are a general liability policy, they only cover damages that cause bodily injuryor specific types of property damage. They are not a substitute for professional liability insurance. As a general contractor, you still need your standard liability policy to be fully protected.
How Do I Use an OCIP?
The first step to using an OCIP is to speak with an insurance broker about your policy needs, avoiding common pitfalls, such as buying too little coverage. Details to give include how many units you will be building, the square footage of the overall project, and the estimated valueof it. With their help, you should access a policy that balances cost with coverage.
For this policy to protect you, it must be in place prior to starting the project. Don’t begin any portion of construction until this policy is in place. Once it’s active, it will cover you throughout the entire construction period. Depending on the wording of your policy, it could protect you until the applicable statute of repose has ended, which is 10 years post-completion in California. People covered by the policy, no matter who takes it out, include the property owner, the general contractor, and all enrolled subcontractors; sometimes coverage will be extended to the design team as well.
To use the policy, you only need to file claims when needed. The insured individuals will be jointly defended by the attorney working with the coverage provider.
Is the Cost of an OCIP Worth It?All construction projects should be fully insured, as the risks of not doing so are simply too great. OCIPs are not extraneity expensive. Premiums are usually just 2 percent of the overall construction costs, and the liability limit does not need to be more than 75 percent of the hard construction costs. There will be a deductible, but these tend to be proportional to the amount of coverage needed, preventing them from being too excessive for the project.
Get Help Administering an OCIP
The process of administering an OCIP is complex, requiring that you individually enroll the various contractors and other players into the program. Unless your business is large enough to have its own insurance department, you’ll want to rely on an expert like Leap | Carpenter | Kemps Insurance Agency to get you through the process. By engaging LCK, you stand to save you money in the long run by ensuring everything is done correctly and you’re not left open to lawsuits.
Turn to Leap | Carpenter | Kemps Insurance Agency
Navigating the insurance process can be stressful for general contractors like you. At LCK, they are dedicated to making it as simple as possible. From comparing policies to on-site assistance, they are the insurance team that is always there for you. Contact them today for help with your wrap policy.
About the Guest Author
Shawn Dwyer – Shawn Dwyer, the Vice President of Leap | Carpenter | Kemps Insurance Agency specializes and has a deep understanding of captive insurance, workers’ compensation insurance, general business insurance, and safety and risk management.