Help Understanding the Construction Project Insurance Program
A Claimant should identify early on applicable policies of insurance and understand the policy terms, exclusions, and coverage limits. Where a project has an insurance program that is owner-controlled (OCIP) or contractor-controlled (CCIP), one policy will cover most of the parties working through or under the general contractor. There are exceptions to who is covered but typically, beyond the general contractor, major subcontractors and most lower-tiered subcontractors are covered. Therefore, an owner making a claim on an OCIP or CCIP project will need to notify only one carrier of the claims, whereas with individual CGL’s, the owner would need to send multiple notices, and the failure to timely notify a carrier could result in the later denial of otherwise available coverage where the insurer is prejudiced by late notice of a claim. Additionally, the terms and exclusions of OCIP and CCIP policies may materially differ from traditional CGL policies, and the available limits of the policy may be less than the aggregate of individual CGL’s.
Unlike OCIP, CCIP or CGL coverage, a contractor’s surety (performance) bond does not provide the same type of coverage Moreover, a bond is limited to its penal sum. Thus, claims, including attorney’s fees and costs, which exceed the penal sum of the bond will not be covered, unlike a contractor’s liability policy where the indemnity limit of the policy is separate from the insurer’s obligation to defend the insured. Similar to a bond, and unlike CGL’s, the limits of a professional liability policy diminish with every dollar of defense costs incurred.
Another factor to consider is whether there is a deductible or self-insured retention (SIR) under a liability policy. Deductibles are typically paid by the insured at the conclusion of the case or at the time of settlement by the carrier, whereas SIR’s must be met before the carrier will participate and this can provide a potential roadblock to settlement at mediation where an insured refuses (or is unable) to meet its SIR. Where an insurer is excess, its obligations do not arise until the primary limits are exhausted. Typically, excess policies will have reporting requirements by the insured once the claim amount reaches a certain threshold. Unless a claim’s value appears reasonably likely to exceed primary limits, it may not be advisable for an excess carrier to appear at mediation which could stymie efforts to settle a claim within primary limits.
Because liability policies and bonds cover different risks, and particularly where defense costs will be significant, different settlement strategies should be employed by the parties and mediator.
If you need help understanding the construction project insurance program, contact Florida construction mediator and lawyer Gary L. Brown at (954) 370-9970 or (954) 448-1133.