OCIP: Outta Control Insurance Pretense
October 2007Few abbreviations raise the moans and groans from commercial subcontractors (with the possible exception of OSHA) than OCIP, or owner-controlled insurance programs. Sometimes referred to as a "Wrap-Up,” most of these programs are tools for the owner (or in the case of a CCIP, the general contractor) to save a buck at the expense of the subs’ coverage at best, and a devious back-door way to impose some pretty onerous contract terms on the sub with its "mandatory enrollment” decree at worst. Either way, an OCIP is just another in a long list of thinly veiled attempts on the part of owners and contractors to shift the entire risk of third-party liability claims from themselves to the subcontractor.
The bad news that the project is plagued by this blight usually comes first to the estimator as part of the bidding instructions. Along with the 10,000 other tasks that a commercial drywall estimator has to perform to arrive at a meaningful proposal, with an OCIP we are asked in addition to calculate our bid with and without our commercial general liability insurance inclusion, so that the owner may deduct a like amount to cover his premium for a blanket program that covers all subs. Aside from being another hoop to hop through for the estimator, this all sounds pretty innocuous on its face, doesn’t it?
Think again. The treacherous pitfalls that an OCIP present to the subcontractor are as numerous as they are deep. While few contractors offer to produce the entire policy manual for your review (a mixed blessing, because they are written in an alien tongue, discernible only to the underwriter’s trained eye) the brief summary that they do include is usually enough to tip you off that you’re about to get shafted from six different directions.
First, the coverage is usually inadequate in comparison to your own carrier’s CGL. Frequently you’ll find a clause that allows a "no-fault deductible” to be allocated among "involved parties” to a claim at the sole discretion of the owner. In short, the owner leaves the slack and gets to decide who picks it up. Sound fair? And if you read closely, you’ll likely find that there are several clauses that actually increase your exposure beyond the scope of the policy, but disclaim any responsibility over and above the stated coverage. Basically, it makes you more vulnerable and protects you less.
Next, the program typically imposes terms and conditions with regard to risk that are even more onerous and one-sided than the terms of the original agreement. Watch for broad-form indemnity clauses that let the owner off the hook even in the event of his own sole negligence. Frequently, OCIP programs impose a duty on the sub to defend the owner from any third-party claims—even those only indirectly involved with the sub’s work. It is also not unusual to find clauses that extend the exposure of the sub to claims far beyond the completion of operations.
Finally, some OCIP programs may be terminated at any time during the performance of the project—once again, at the sole discretion of the owner. In these cases, the subcontractor must go back to his CGL carrier and pay for coverage for the entire duration of the project, not just the remaining time/value on the contract in spite of the fact that he’s already paid for the OCIP coverage in a deductive change order.
You might wonder what this has to do with estimating. Well, as I said, the estimator is usually the first to learn about the OCIP aspect of a job, and thus is the first line of defense against it. What can a sub do, short of passing over an otherwise juicy opportunity because of the OCIP flaw? I advise my colleagues to have their CGL carrier request the policy manual and assess the treachery level. If the terms are similar to those I’ve described and there is no way to opt out, I’d find no better recourse than to inflate my bid by the amount of the expected deduction for OCIP and keep my regular CGL coverage intact.
Does this sound somewhat duplicitous coming from an estimator/manager who espouses integrity and fair-dealing? I think not. I am merely giving the owner back the actual value of his mandated coverage. And by my best reckoning, it is worth absolutely nothing.
About the Author
Vince Bailey is an estimator/operations manager for San Juan Insulation and Drywall, Durango, Colo.