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Condo Builder’s broker actively discourages Condo Builder from relying solely on the OCP policy to protect Haven Hills. Even though there are some distinct advantages to an OCP policy when compared to being an additional insured on the policy of others, the broker points out an OCP policy is generally intended to protect the named insured owner from the negligence of the contractor.
Coverage for the negligence of the owner is severely restricted in the OCP – coverage applies to the acts or omissions of the named insured owner only if such acts or omissions are in connection with the general supervision of the contractor’s operations. As the Garden Estates claim was not related to the general supervision of the general contractor’s work, Condo Builder begins to realize the OCP will leave them just as exposed, if not more so, than they were in the past.
The discussion brings out other major coverage issues:
It is now abundantly clear to Condo Builder that neither an OCP policy nor additional insured status on the general contractor’s CGL policy provides them with sufficient protection. Their broker recommends a project specific, customized CGL policy, often referred to as an “Owner’s Interest” policy.
While more costly than the OCP policy, Condo Builder sees the policy’s substantial difference in coverage, and thus value; the owner will now have appropriate coverage for the Haven Hills project.
One unique feature that is often available in the Owner’s Interest policy is the extended completed operations coverage – an endorsement that extends products-completed operations coverage to protect the owner for products-completed operations claims that take place after the project is completed and after the policy expires. The extended completed operations coverage lengthens the period of coverage for completed operations for several years after project completion, often matching the state’s statute of repose timeframe for suits against the owner for completed work. Why shouldn’t Haven Hills rely on the contractor’s completed operations coverage? There are many reasons. The contractor’s limits and coverages may be inadequate for Haven Hills’ needs.
Haven Hills may well lose their additional insured status after the project is completed and the contractor’s policy renews. And, contractors go out of business. When they do, their insurance programs expire, leaving their past clients with no protection for the contractors’ completed operations exposures.
The Owner’s Interest policy with extended completed operations insurance can close these potential gaps, and could possibly provide one-time, cradle-to-grave coverage for the owner’s exposures on the project.
Once Quality Contractors, Inc. hears about Condo Builder’s Owner’s Interest CGL policy, they want to be included. In some circumstances, the insurer providing the Owner’s Interest CGL will include as a named insured the general contractor, creating a “mini” wrap-up CGL policy that protects both the owner and general contractor, including the extended completed operations coverage to protect both the project owner and general contractor.
This is often a very cost-effective solution for both parties.
ABOUT THE AUTHOR
Craig Stanovich, CPCU, CIC, AU, is the co-founder and principal of Austin & Stanovich Risk Managers, LLC, a risk management and insurance advisory consulting firm specializing in all aspects of commercial insurance and risk management, providing risk management and insurance solutions, not insurance sales. Services include fee based risk management, expert witness and litigation support and technical/educational support to insurance companies, agents and brokers. Email at firstname.lastname@example.org. Website www.austinstanovich.com.