Understanding the Benefits of Owners and Contractors Protective Liability Insurance
When contractors are awarded construction bids, they have to carry certain types of insurance that the project owner requires. This includes standard coverages, such as:
- Contractors general liability (CGL) insurance
- Workers’ compensation insurance
- Commercial auto insurance
Today, more project owners are requiring owners and contractors protective liability (OCP) coverage. While not as well-known and often misunderstood, it’s important to know who’s covered in an OCP policy and how they work.
OCP: Not a Replacement for CGL Coverage
OCP is different from CGL coverage in many ways. An OCP policy is:
- A standalone policy that’s project-specific
- Meant to protect one party, usually an owner or contractor
- Specifically for the operations performed for owners by a designated contractor named on the declarations page
It’s important for contractors to not use an OCP policy in place of a CGL policy. Think of it as an extra measure of protection on top of CGL coverage.
Is an OCP Similar to a CGL Policy?
Adding a project owner to a CGL policy as an additional insured on professional liability means contractors can help protect them. An OCP provides coverage specifically to the project owner. So, the OCP offers narrower coverage for owners.
What Does an OCP Cover?
An OCP helps cover claims for bodily injury and property damage that can result from two possible scenarios:
- The project owner’s vicarious liability in connection with the contractor’s work
- The project owner’s acts or omissions in connection with the general supervision of the contractor
OCP and Contractor Coverage
Although the named contractor buys an OCP, they don’t get coverage from it. Instead, it’s the project owner, or “named insured,” that the coverage applies to. An OCP helps protect the project owner from liabilities that a contractor’s work may cause.
What Doesn’t an OCP Cover?
An OCP policy doesn’t cover claims due to the project owner’s negligence. However, the policy can help cover this kind of claim if it’s related to the acts of “general supervision” of the contractor.
Be aware that OCP coverage is limited to liabilities during the policy period and at the job site 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 solely for a project owner. That person or the company alone receives primary coverage with a separate, dedicated set of limits.
Under a CGL policy with an owner named as an “additional insured,” they share protection with other parties. This means the coverage limits apply to all parties.
An OCP policy is also primary, meaning its coverage applies first before other insurance policies that the owner may have.
For the Contractor: OCP Losses Don’t Lead to Premium Hikes
While contractors don’t get coverage from an OCP policy, they do still benefit from it. The OCP carrier pays losses outside of the contractor’s insurance program. This means losses don’t affect the contractor’s insurance premiums.
With a CGL policy, losses paid to the owner can cause the contractor’s rates to increase during the next policy period.