GETTING WRAPPED-UP IN THE DETAILS
An Introductory Guide to Consolidated Insurance Programs

1. INTRODUCTION 1
2. ADVANTAGES AND DISADVANTAGES 2
1. Advantages of CIPs 2
2. Disadvantages of CIPs 3
3. GENERAL CHARACTERISTICS 4
1. WHO IS IN? / WHO IS OUT? 4
2. COVERAGES: WHAT IS INCLUDED? / WHAT IS EXCLUDED? 6
1. What is Typically Included? 6
1. CGL Policies 6
2. Builder's Risk 6
3. Workers' Compensation / Employers Liability 7
4. Excess / Umbrella Insurance 7
5. Professional Liability / E&O 8
2. What is Typically Excluded? 8
3. Aggregation of Limits 9
4. Duration of Coverage 10
5. Relationship of CIP with Contractor's Own Insurance Program 10
4. CONTRACT AND BID DOCUMENTS 11
5. CONCLUSION 15

Abstract

Nothing in this world is certain except for death, taxes, and the need for insurance. Depending on who you ask, this list of certainties is in no particular order with respect to its popularity. Within the realm of insurance, however, nothing has perhaps garnered more controversy and strong emotion than the use of Owner Controlled Insurance Programs ("OCIPs") and Contractor Controlled Insurance Programs ("CCIPs"). An "OCIP is a consolidated insurance program controlled by the owner. A CCIP, by comparison, is a consolidated insurance program controlled by the general contractor. The two programs are basically identical with the only real difference having to do with the sponsorship of the program.

In contrast to the traditional insurance setting in which everyone involved in a construction project provides for their own insurance, CIPs provide basic coverages to the owner, general contractor, subcontractors, sub-subcontractors, engineers, architects, and construction managers under one centralized and unified program. Historically, CIPs only were used in large-scale construction projects (e.g., $100 million or more) with a duration of two or more years. While CIPs are still used primarily for large-scale projects, they are being used with more frequency in smaller projects and/or on a rolling basis involving multiple projects.

While CIPs were primarily designed as a cost savings tool, it takes both effective communication and administration before such benefits can fully be realized. To analogize, CIPs are like a marriage. First, each participant needs to know exactly what they are getting into. In particular, before taking the plunge, prospective participants need to evaluate their goals and objectives and determine whether they are likely to change over time. Additionally, as in marriage, prospective participants need to have at least a basic understanding of the market to know whether they are making a good choice. Second, once a prospective participant decides to take the plunge, it takes effective communication to make the union work. The key to communication is listening and understanding. One must listen to what is being offered and must understand what is and what is not included as part of the deal. Third, like a pre-nuptial agreement, a potential CIP participant needs to know how much of its own insurance to maintain in case of a failure.

This paper will provide an introductory guide to CIPs. For more in-depth guidance to specific issues, please refer to the following sources: See Jacqueline P. Sirany & James Duffy O'Connor, Controlled Construction Insurance Programs: Putting a Ribbon on Wrap-Ups, The Const. Lawyer (Winter 2002) (hereinafter, Sirany & O'Connor, Putting a Ribbon on Wrap-Ups); See Gary E. Bird, Consolidated Insurance Programs: A Partnership for Major Construction Projects, Construction Risk Management: Wrap-UP/OCIP, § IX (hereinafter, Bird, Consolidated Insurance Programs); See Gary E. Bird, The Wrap-Up Guide (2nd Ed. 1995) (hereinafter, Bird, the Wrap-Up Guide). In addition to the above-referenced sources, a variety of insightful articles dealing with CIPs appear on www.irmi.com.

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