Risk-transfer measures utilized to protect owners include having a hold harmless provision and indemnification and favorable additional insured language for the owner in a contractual agreement with the GC, naming an owner as an additional insured on the GC’s General Liability policy, and requesting a Certificate of Insurance for proof of adequate limits. But these measures could potentially fall short and not provide the cover you need. Even requiring a GC to provide an Owners and Contractors Protective Policy (OCP) to supplement an owner’s additional status on the GC’s policy leaves you with significant coverage gaps. The only true protection comes with an Owners Interest Insurance Policy (OIP).
Why Risk-Transfer Measures Fall Short
While being named as an additional insured on a GC’s General Liability policy and requesting proof of coverage are standard, must-have requirements, you should not rely solely on these measures. As an additional insured, you are typically covered for actions related to the operations of the contractor but not actions that fall outside of the GC’s direct responsibility. In addition, you have no control over a GC’s exposures with regard to other projects. Typically, GCs work on multiple projects at the same time. If a loss occurs on another project and the claim is paid and exhausts the GC’s liability limits while your project is underway, there may not be enough coverage to address a claim involving your project. In today’s environment characterized by nuclear verdicts, sympathetic juries, and anti-corporate sentiment, you can see how easily limits can be exhausted. A GC may even have several outstanding General Liability claims before you even hire their firm, leaving you without the protection you thought you had. Additionally, a policy can be endorsed excluding certain coverages after the receipt of the Certificate of insurance.
Moreover, the property owner is responsible for maintaining a safe environment — not the GC—and is liable for accidents and injuries that occur on the property. For example, if a courier slips and falls in the driveway while making a delivery, you would be responsible for the injuries. Even with an indemnification contract in place that includes a clause that transfers liability to the GC for securing the jobsite while work is being performed, there has been case law holding the property owner responsible.
In addition, if a GC’s employee gets injured while on the job, they can sue the property owner for negligence in not providing a safe environment. Under the GC’s or subcontractor’s Workers’ Compensation policy, an injured worker can’t sue an employer.
Why an Owners and Contractors Protective Policy Is Not Enough
An OCP is intended to protect property owners for liability that occurs as a result of the actions of their contractors. As a property owner, you are protected if you’re held vicariously liable for acts or omissions of the general contractor. Coverage also applies if you’re held directly liable for the supervision of the general contractor’s operations. It’s important to know that there are limitations and large coverage gaps with an OCP. For example, premises liability coverage applies only as it relates to construction activities, so if someone slipped on ice on your property, you would have no coverage. There is no liability coverage if a contractor’s employee gets hurts and sues you for negligence. If damage occurs to the property after it’s completed, the OCP would not step in to cover the damage and repairs needed.
The Owners Interest Insurance Policy Provides Protection You Need
To adequately address your exposures and properly protect your assets, an OIP is what you need. It provides you with broader coverage that includes premises and completed operations liability insurance and will cover you for negligent claims outside of the GC’s direct work as well as for lawsuits from injured employees on the jobsite. It is designed to provide excess coverage over the GC’s General Liability limits but can also pay for losses uncollectible under the GC’s policy because limits have eroded or coverage is not intended to respond.
An OIP will increase your premiums only nominally relative to your overall program, and the additional coverage greatly justifies the cost. Just take a look at some of the following claims scenarios to understand the need for OIP.
Slip and Fall on Premises Unrelated to Construction Work
A storm hits the area and a large piece of wood covering the site exterior blows off, landing on the sidewalk. A young man riding his bike has to veer onto the street because the sidewalk is blocked by the dislodged wood. He is hit by a car and sues not the driver but the property owner for negligence, claiming the unsafe worksite caused the subsequent accident.
Injured Worker Sues Property Owner
A subcontractor falls into a four-foot deep hole at the jobsite, becoming permanently disabled. He sues the owner for not keeping a safe environment.
Construction Defect Causes Roof Damage
After a four-story condominium building was completed, there was a major leak in the roof due to a construction defect. The leak caused damage in several condo units, amounting to tens of thousands of dollars in repairs.
In each of these cases, an OIP can be designed to respond and pay for the claims up to the limits of the policy.
In Conclusion
Having a clear understanding of how well you are protected against liability claims as an owner of properties under construction and undergoing renovation is critical to safeguarding your bottom line. There is a great deal of confusion about exactly how much protection owners have with a GC’s General Liability policy and the options available to ensure that certain exposures are properly addressed. There is no cutting corners when it comes to protecting your assets and being risk ready.
About Brian Haughn
Brian Haughn is president of Haughn & Associates, one of Central Ohio’s largest full-service insurance agencies. His background as a construction project manager enables him to have a unique insight into the day-to-day challenges faced by construction firms. Over the years, Brian has distinguished himself in the construction industry as a true expert in risk management.
Brian is licensed in Property & Casualty and Life & Health insurance, currently holds a board of directors position with the Associated Builders and Contractors Central Chapter and sits on the American Subcontractor Associations Counsel for the Central Ohio Chapter.