The Benefits and Challenges of Consolidated Insurance Programs

CIPs are wrap-up insurance plans that bundle different types of coverage into one plan. Here's what construction companies need to know.

Trent Cotney, Partner and Construction Team Co-leader

February 29, 2024

3 Min Read
Antonio Guillem / Alamy Stock Photo

When you start a construction project, securing adequate insurance is a critical step. Could you benefit from a consolidated insurance program? CIPs are wrap-up insurance plans that bundle different types of coverage into one plan. Owner controlled insurance programs (OCIPs) and contractor controlled insurance programs (CCIPs) are two key types.

OCIO Basics

OCIPs were initially created to offer efficiencies and cost savings for large commercial construction projects, primarily with budgets of at least $50 million to $100 million. In recent years, owners have utilized them on small projects too.

Under a traditional insurance model, each contractor or subcontractor purchases their policies to cover their liability on a given project. However, with an OCIP, a single policy covers an owner or developer, a general contractor and all subcontractors or a specified project (or sometimes a group of projects). With an OCIP, contractors do not need to secure insurance, so that cost will not be included in the bids that owners receive.

Generally, OCIPs include the following elements:

  • Commercial general liability (CGL) insurance, which protects the owners on a project.

  • Builders risk insurance, which covers damage to structures on a jobsite.

  • Professional liability insurance, which covers costs stemming from design problems caused by architects, engineers and other design professionals.

  • Excess liability (umbrella) insurance, which provides additional coverage to CGL.

  • Workers compensation insurance, which provides coverage for workers injured on the job.

  • Subcontractor default insurance, which covers unforeseen costs related to a contractor’s unmet obligations.

  • Completed operations coverage, which covers those on the policy beyond the project completion date and perhaps as long as the statute of limitations.

Some OCIPs may also cover specific liabilities, such as flood and earthquake or pollution and environmental issues.

OCIPs do not include surety bonds, commercial auto insurance, indirect costs for contractors and designers, contractors with limited involvement or working off-site and third-party vendors, transporters or manufacturers.

OCIP Benefits

Owners may see many advantages in choosing an OCIP. They will generally enjoy lower costs because the insurance policies are bundled together. Enrollment for contractors is quick, the claims process is streamlined, and there are usually higher limits on these policies, which is a plus for both owners and contractors.

OCIP Drawbacks

For all their advantages, OCIPs are not perfect. They can carry higher administrative costs for the owner or project sponsor. There is also a possibility that contractors will be less motivated to control losses or may file false claims if they are not responsible for the insurance policy, which can be problematic for owners. Some contractors do not prefer OCIPs because they may actually receive lower coverage than they would purchase themselves, depending on the policy. In addition, OCIPs can complicate the contractors’ bidding process if they must create bids with and without insurance included.

CCIP Basics

CCIPs offer many of the same features as OCIPS. The primary difference is that contractors pay for CCIPs while owners or project sponsors pay for OCIPs. The other difference to consider is cost. Contractors with healthy safety records may be able to secure CCIPs at lower rates than owners can secure OCIPs.

In addition, some contractors may be able to work with their insurance providers to set up a rolling CCIP for continuous construction projects, rather than similar policies for each one.

CCIPs provide a level of security for contractors because if they hold the insurance policy, owners have an added incentive to see the project through to completion. If the owner holds the policy and leaves the project, the insurance leaves the project too.

Final Thoughts

Using a CIP for your next construction project could be a viable, streamlined, comprehensive solution for insurance coverage. But before you agree to one, be sure to review the details and determine if an OCIP or a CCIP is best for you.

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information, you can contact Trent at 866-303-5868 or [email protected].

About the Author(s)

Trent Cotney

Partner and Construction Team Co-leader, Adams and Reese LLP

Trent Cotney serves as an advocate for the roofing industry and general counsel of the National Roofing Contractors Association and several other industry associations. For more information, contact the author at [email protected] or at 813.227.5501.

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