How an OCIP Manages Risk
By David L. Grenier
C-Risk, Inc.
February, 2001
This article is part of a series discussing Owner-Controlled Insurance Programs (OCIPs).
Traditional vs. OCIP Approaches
In order to gain a better understanding of the OCIP, let’s first examine how an owner would traditionally mitigate risk on a construction project.
Traditionally, an owner and a contractor execute a construction contract which includes an indemnification clause with exculpatory language expressly stating that the contractor shall hold the owner harmless for any loss arising out of the execution of the contract. This type of indemnification clause usually protects the owner from any vicarious liability and mitigates the owner’s contributory negligence exposure.
In addition to this contractual provision, the project owner would require that the contractor purchase and maintain adequate insurance coverage with specified minimum limits of liability. At the very least, owners normally require contractors to provide workers’ comp, employers liability, and CGL coverages. The owner will usually require that the contractor name the owner as an additional insured on the contractor’s liability policies; this ensures that the contractor will defend the owner in the event of any thirdparty action-over claims.
Under traditional insurance programs, one alternative to being named as an additional insured is for the owner to require the contractor to purchase an owners’ and contractors’ protective liability policy. This project-specific policy is purchased and maintained by the contractor; however, the cost for this policy is reimbursed by the owner when required by the owner.
By comparison, under an OCIP, insurance coverage (usually the workers’ comp and CGL) is provided by the owner to the contractor, subcontractors, and subsubcontractors. The indemnification provision still exists, but the standard contractor insurance requirements are removed.
Next: Advantages and Disadvantages to Owners and Contractors
About the Author: David L. Grenieris President of C-Risk, Inc., a national risk management consulting firm providing risk management strategies and solutions to construction-industry clients. He specializes in construction, contract management, and wrap-up insurance programs.
Copyright © 2001-2006 David Grenier. All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder, except as follows: You may link this article to your website, either directly or through an ExpertLaw Library index page, provided your link does not depict this article, its author, or expertlaw.com in a negative manner.