An Owners Interest (OI) Liability Policy insures the owner of a construction project for their vicarious liability arising out of the work performed by the contractors on a project as well as their direct liability as the developer.
Owners or Developers (Owner) will typically hire a General Contractor (GC) to build their project. The GC in turn will hire various Subcontractors (Subs) to complete specific portions of the work. When risk is managed correctly, the Owner will require the GC to provide General Liability Insurance and list the Owner as an Additional Insured under that general liability policy. The GC will require all the Subs to name the GC and the Owner on their general liability policies as Additional Insureds as well. The Owner will also require the GC to hold harmless and indemnify the owner from any and all liability arising out of the construction with the exception of the Owner’s sole negligence, willful misconduct or active negligence. The GC will require similar indemnities running in favor of the GC and the Owner from the Subs.
Since the General Contractor has primary control of the site and the work being done there, they are primarily responsible for any liability arising out of the site. If the Owner is brought in to a suit, they would be covered under the GC’s General Liability (GL) policy as an Additional Insured and if for whatever reason the Additional Insured status wasn’t valid, they could trigger coverage under the GC’s policy via the indemnity agreement and the contractual coverage included in the GC’s policy. With both Additional Insured status and a favorable indemnity, the owner should have limited exposure.
However, it is still recommended that the Owner have their own insurance to protect them in case the General Contractor’s insurance were to expire or have inadequate limits. The Owner could also be sued directly for something they did, and this may not be covered by the GC’s insurance program. It is for this reason that an Owner would consider an Owners Interest Liability policy.
These policies are typically written for the term of the construction. They can be issued with or without an Extended Reporting Period (ERP) endorsement. This endorsement extends the policy, generally through the Statute of Repose (10 years in California) for completed operations, most typically to protect against suits arising out of construction defects. If an Owner is going to own the project after completion, an ERP is probably not necessary. If they are going to sell the project an ERP is recommended.
An alternative for the Owner is to purchase an Owner Controlled Insurance Program (OCIP). An OCIP covers the Owner, the GC and all the Subcontractors on the project. It provides coverage through construction and usually through the applicable statute of repose. There are benefits to an OCIP. It assures the Owner that all Contractors on the project are insured and will be covered throughout the statute of repose. An OCIP however requires substantial administration and a proactive effort to recoup costs from Subcontractors because they don’t have to utilize their own insurance. OCIP’s are also more expensive than an Owners Interest policy but that difference can be offset by the insurance credits received from the Subcontractors. Generally speaking the larger the project, the more sense an OCIP will make. It is recommended that Owners consider both the Owners Interest option and the OCIP option.
Construction projects are complex and fraught with liability. It is prudent for the Owner to carefully evaluate risk management options and structure their insurance program to fit their unique needs.
