Commercial construction is set to rise by 11% this year with office construction from technology and finance firms leading the upturn1. With this upswing comes questions. Accelerated construction projects leave business owners asking retail brokers, “What is the difference between Owners and Contractors Protective (OCP) and Commercial General Liability (CGL) policies?”
OCP coverage is used when specialized contractors are brought in to work on a project basis. Project owners can be held liable for negligent acts or omissions from the contractor during the duration of the project. These exposures may include bodily injury or property damage to a third party.
“If a construction project owner is dragged into a lawsuit for an oversight or bodily injury due to acts or omissions in connection with the general supervision of a project by a contractor or subcontractor, OCP would provide defense,” says Jessalynn Suda, Associate Managing Director with Burns & Wilcox in Detroit/Farmington Hills, Mich. “OCP is intended for vicarious liability that an owner would assume on behalf of the contractor.”
CGL forms are broader and are not necessarily limited to the insured’s acts or omissions as far as supervision of the specified project. Looking at the first page of the forms can clear up industry confusions between the differences of OCP and CGL policies.
Reviewing the policies
Reviewing the language on page one of the OCP coverage form reveals the specifics. It states that it specifically covers the insured for the job to be performed by a contractor that has been scheduled on the policy, as well as for any acts or omissions on the job-site.
“OCP is very specific, and does not have separate coverage parts for products, completed projects, personal and advertising injury, damages to premises rented or medical pay as a CGL policy would,” adds Suda.
“Contractors performing the actual project work will hold a CGL policy to cover site-specific liabilities,” said Tyson Peel, National Property & Casualty Manager with Burns & Wilcox Canada in Toronto.
Once a project is complete, the OCP policy becomes unusable. At that point, a combined OCP and CGL policy can be written for vacant property and existing land until the commercial property (i.e. retail store or restaurant) becomes fully operational.
Coverage examples
“OCP claims occur less frequently, with most claims stemming from a third-party trip and fall near a job-site,” states Suda. “We have also seen claims where a business owner is sued due to an unruly contractor who is creating excessive trash and throwing cigarettes.”
These types of claims could fall within an OCP policy or as part of Additional Insured status on a CGL policy.
Noise violations are another claims example. Large metropolitan areas, such as New York City, have noise mitigation plans for construction projects where work time is limited to 7:00 am to 6:00 pm and noise decibels for certain activities must remain under a specific level2. Noise code violations from a construction site may negatively affect the neighborhood or result in loss of revenue, bringing forth a lawsuit if the problem is ongoing.
Separate or together?
Additional Insured endorsements on a CGL policy are very similar to a standalone OCP policy. However, knowing which direction to take your client may not always be clear.
“Starting a new project with an OCP policy is a cost savings to a project owner, as the CGL policy can be more expensive,” said Suda.
In addition to an initial cost savings, a project-based OCP policy provides coverage limits to the project owner only, whereas Additional Insured status shares liability limits on the CGL policy.
Peel adds, “In Canada, it is less common to purchase separate policies. Most business owners use a CGL policy with Additional Insured status for construction projects.”
Construction industry is booming
Commercial construction is thriving. The entire construction industry in the United States is slated to hit $712 billion by the end of 20163 and during the 10 years to 2020, the contractor industry is expected to grow at a rate of 3.1% annually in Canada4.
Growing technology and finance firms who may have once leased smaller spaces may decide to build their own office. These emerging firms may not necessarily have the experience in construction and will need to turn towards insurance brokers and agents.
“Brokers and agents have a tremendous opportunity to bring their insight to business owners who are building from the ground up or performing large scale renovation projects,” said Peel.
Whether a business owner is starting new construction and is looking to use an OCP policy to delay starting a CGL, or a renovation project of an existing space requires Additional Insured status on a CGL, broker insight to navigate the coverage is key.
