Owners and Contractors Protective Liability

The Other Contractors Insurance: Understanding the Benefits of an OCP

When contractors are awarded construction bids, they’re required to maintain an insurance program outlined by the project owner. These include standard coverages like contractors general liability (CGL), workers’ compensation (WC) and auto, which usually require additional insured status for the owners. 
Today, more owners are also mandating the lesser known and often misunderstood owners and contractors protective liability (OCP)* coverage. It’s important to understand who and what is covered under OCPs as they gain popularity.
Here’s an overview.

OCP Isn’t a Replacement for CGL Coverage

In fact, it’s different from CGL coverage in several ways.
  • First of all, an OCP policy is a project-specific, stand-alone policy.
  • As the name suggests, it’s meant to protect one party – usually an owner or contractor.
  • It’s protection specifically for the operations performed for owners by a “designated contractor” named on the declarations page.

OCP Doesn’t Cover Contractors, Even Though They Pay for It

Although the designated contractor procures and pays for the policy, that contractor receives no coverage from it. Instead, the project owner is the principal, or “named insured.” The policy is designed to protect the named insured for liability arising out of the actions of their contractor.

OCP Offers Narrower Coverage for Owners Than a CGL Policy

By adding an owner to a CGL policy as an “additional insured,” contractors can protect them. But an OCP provides coverage to the owner more specifically. It covers claims for bodily injury and property damage that arise out of two possible scenarios:
  • The owner’s vicarious liability in connection with the contractor’s work, or
  • The owner’s acts or omissions in connection with the general supervision of the contractor.
There are other distinctions you need to understand:
An OCP policy excludes coverage for claims arising solely out of the owner’s direct negligence, unless that negligence is related to acts of “general supervision” of the contractor.
Coverage is limited to liability that arises only from ongoing operations that occur:
  • During the policy period, and
  • At the job site which will be listed on the declarations page.

Advantages of an OCP

For the Owner: Exclusive, Primary coverage

The main advantage of an OCP policy is that protection is available solely to a project owner/named insured. That person or company alone receives primary coverage with a separate, dedicated set of limits.
Under a contractor’s CGL policy, an owner could be named as an “additional insured,” potentially sharing protection with other parties that could potentially exhaust it.
OCP coverage is also primary, so if there are multiple policies that could potentially respond to a claim, the OCP is applied on a primary basis.

For the Contractor: OCP Losses Don’t Lead to Premium Hikes

Although contractors don’t realize direct benefits of coverage under an OCP policy, they still benefit from it.
Any losses paid by the OCP carrier are paid outside of the contractor’s insurance program, and therefore will not affect the contractor’s premiums.
By contrast, losses payable to the owner under a contractor’s CGL would potentially cause that contractor’s rates to increase in the next term.

Take a 'Belt and Suspenders' Approach

An OCP should never be used in place of a CGL policy, but as an extra measure of protection. Think of the additional insured status (CGL) as the belt and the OCP as the suspenders.
Learn about how to protect your projects and your business with OCP coverage.
* Offered on a monoline basis.
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