AAPA Legal & Risk Management Seminar Introduction to Wrap-up or Owner Controlled Insurance Programs July, 2005
Table of Contents What Is An OCIP Or Wrap-Up? When Should An OCIP Or Wrap-up Be Considered? How Is This Different From the Traditional Approach? Why OCIP? Insurance Coverages Provided By An OCIP 2
What is an Owner Controller Insurance Program or OCIP? OCIP/Wrap-Up: A centralized and controlled: Insurance Loss Control/Safety Claims Management program purchased by Owner covering all contractors and subcontractors of every tier 3
The Wrap-Up Concept Owner purchases the insurance for a specific construction project, as opposed to traditional method of contractors purchasing their own coverage Major Project Coverages: Project Professional, General, Excess, Environmental, Builder s Risk Program coverage includes the Owner, construction managers, general contractors, all subcontractors of every tier 4
Large Projects: When Should An OCIP or Wrap-Up Be Considered? If Workers Compensation is to be included in the Wrap-Up, projects in excess of $100 million of hard costs If there is no Workers Compensation: $200 million of hard costs Complex / Long-Term Projects: Projects that will need 2 years(+) to complete Unique or high risk exposures Heavy USL&H costs Tunneling Multiple General Contractors 5
OCIP vs. Traditional Approach Coverage for OCIP/Wrap-Up Approach Traditional Approach Construction Operations Project Site Off-Site (Non-Project) Project Site Off Site (Non-Project) Workers Compensation Owner Contractor Contractor Contractor USL&H Owner Contractor Contractor Contractor General Owner Contractor Contractor Contractor Builders Risk Owner or Contractor Owner or Contractor Environmental Owner Owner Contractor Contractor Professional Owner A/E Practice Program Auto and Physical Damage Contractor Contractor Contractor Contractor Contractor Contractor Performance Bonds Contractor Contractor Contractor Contractor 6
Who is Insured Under a Wrap-Up? Project Owner/Developer Construction Managers Contractors Subcontractors of All Tiers Anyone Who is Enrolled Architects/Engineers Consultants 7
Why Do An OCIP? Reduced insurance costs (1% to 3% of hard costs) Broader and tailored coverage Uniformity and adequacy of coverage for all contractors and subcontractors Remove barriers of insurance for smaller, DBE firms Higher limits of liability Insurance costs fixed for the term of the project Insurance coverage in place through the Statute of Repose (8 years in Washington from completion of the project) 8
Why Do An OCIP? (Cont d) Central administration of: Claims Safety and Loss Prevention: Single Source and Standardized Program Verification Process: Contractor Insurance Safety Project Closeout Public Relations Control of information Allow minority/small contractor participation Expedites claims payments 9
Why Not Do An OCIP / Wrap-Up? Contractor Resistance to an OCIP Simplify contract documents Insurance manual and self-explaining forms Pre-bid and Pre-construction meetings Demonstrating the OCIP Meets Financial Goals Negotiate and track the contractor s insurance cost Account for all the costs and documenting the savings Administration Issues 10
What Will the Contractor Still Need to Provide? General for all work outside of the Project Automobile Workers Compensation (either for the Project and/or for work outside the Project) Property Insurance for his tools and equipment Bonds 11
Potential OCIP Coverages Builder s Risk $300M Follow Form Excess $500M Workers Compensation USL&H Primary Contractor Coverages $4M General $2M/ $4M Employers $2M Pollution (PLL/CPL) $25M Professional $25M Railroad Protective As Required Business Auto $1M OFF-SITE General $1M OFF-SITE Workers Comp Statutory Surety Bonds GENERAL LIABILITY: Annual Reinstatement of Limits, except Products/Completed Operations Aggregate 10 Year Products/Completed Operations Period 12
Optional Coverages Force Majeure Cost Overrun / Delayed Completion 13
Steps? Legislative Exemption - Where required Preliminary Feasibility Study Contract Language Administrative Infrastructure 14
15 Summary