Controlled insurance programs (CIPs) are a group of insurance products that fall into the category of wrap-ups. With a CIP or another type of wrap-up insurance product, separate insurance policies by each contractor or subcontractor are replaced by a single, project-specific insurance program for on-site risks, losses and casualties intended to protect most of the project’s participants. They are increasingly used on large construction projects as owners and contractors look to minimize insurance cost and risk, reduce tracking of subcontractor expenses and minimize the concern over subcontractors’ potentially less-than-adequate insurance and coverage gaps.
Wrap-ups include Owner Controlled Insurance Programs (OCIPs) and Contractor Controlled Insurance Programs (CCIPs). An OCIP is controlled by the owner and typically includes both General Liability, Excess General Liability insurance and Workers’ Compensation coverage. In some markets, there is a trend to include a Builder’s Risk policy as well as Professional Liability and environmental liability policies in an OCIP. Typically, Commercial Auto Liability is excluded from an OCIP or CCIP. OCIPs can be used on either large individual construction projects or on a “rolling” basis by aggregating smaller projects in a capital improvement program into an OCIP.
Under both an OCIP and CCIP, all participants fall under the same policy so there is more clarity of coverage as compared to the traditional approach where the owner, general contractor and subcontractors all have different policies from different carriers with different coverages, different exclusions, different deductibles and different limits. In addition, without this overarching policy, gaps may occur if one subcontractor has different coverage or limits. With an OCIP, the owner has the comfort of knowing that everyone on the project is covered. Additional benefits of a wrap-up include:
- Isolates construction risk to a project-specific program
- Known dedicated limits, coverages and insurers
- Known completed operations coverage and term
- All contractors comply with on-site insurance requirements
- Reduces litigation
- Centralized safety and claims management
- Project term pricing protection
- Provides broader scope of coverage and higher limits
- Eliminates concerns over improperly insured contractors
- Potential savings
There are disadvantages as well to an OCIP that must be reviewed, including potential coverage gaps that must be addressed. For example, an OCIP does not cover suppliers, material dealers or vendors. Also, where some work is performed off-site, that work might not fall under the OCIP's definition of the project site for purposes of insurance coverage. It is, therefore, important to make sure that a gap is not created for off-site fabrication and delivery. A typical OCIP will also exclude Product Liability coverage for products manufactured off-site, and may exclude environmental claims as well as specific contractors due to their trade (for example, demolition or abatement of hazardous materials) or due to their claims history. Separate policies need to be added to address these exclusions.
Wrap-up policies can provide significant cost savings and increased efficiency for insurance coverage on large construction projects. At the same time, it’s important for clients to understand the scope of coverage available and what risk-transfer solutions are available to address any gaps.
RPS specializes in insuring the construction industry including providing wrap-ups both for owners and general contractors. Contact us for more information.