PF&M AT A GLANCE
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The CG 00 09, Owners And Contractors Protective (OCP) Liability Coverage Form (for designated contractors) was developed by ISO for an important reason—to provide coverage for a named insured’s vicarious liability. Specifically it protects an insured who is sued because of actions that another party performs on behalf (or at the request of) that insured. With an OCP policy, an insured is protected for harm or damage created by work that an independent contractor does for the insured. It also covers liability related to the insured’s responsibility of supervising such contractors.
The named insured qualifies for this coverage only under certain conditions. An insured must own or be a tenant of the property upon which work is being performed. Another party that is eligible is another contractor for whom the designated contractor is performing operations. The liability protection under this form ends when the project or operations are completed. Further, the coverage applies only to a specific project and/or location.
The primary exposure under an OCP form is vicarious liability. This refers to holding one party responsible for the actions or conduct of another party, based solely on their relationship. For purposes of the OCP policy, the vicarious liability occurs when the named insured, who is either a property owner, project owner, general contractor or other contractor, is held liable for the acts of a hired contractor, subcontractor or independent contractor who is working for (or on behalf of) the insured. These situations represent a superior-subservient relationship.
The element that makes the form unusual is that the named insured is not the person who buys the coverage. The buyer is the contractor. The named insured is covered for the actions of that particular contractor and also for their own acts and omissions related to their supervision of that contractor.
Usually vicarious liability stems from injury or damage caused by an employee under a strict employer-employee relationship. However, under certain circumstances, consequences of the acts of non-employees, such as independent contractors, may be attributed to the owner or general contractor. The circumstances fall into three categories:
1. Work that is inherently dangerous; 2. Projects that impose non-delegable duties on the project-owner under local, state or federal law; and 3. Negligence in hiring an incompetent contractor.
The property owner or a general contractor can be a named insured under an OCP if the owner or contractor is using independent or subcontractors to perform operations on their behalf. It is important to note that there are no requirements as to the type of operation that the named insured is having the contractor perform. Therefore the operations may be personal, farm or commercial. The only requirement is that there be a situation of vicarious liability between an owner who has a contractor working for that owner or a contractor that has subcontractors or independent contractors working on its behalf.
This coverage part has to be written as a monoline policy because its provisions are not compatible with other coverage parts. Consider the premium payment condition. In the OCP, the named insured has no responsibility over premium payment and premium audit. Attempting to combine the OCP and other policies would create confusion for insureds.
OCP policies have become increasingly popular for various reasons. One is the ongoing changes to the additional insured endorsements (becoming more restrictive). Another reason is that more insurers insist on using forms that include aggregate limits. Related directly to this reason is a growing concern that having more than one insured on a policy increases the chances of exhausting the policy’s aggregate limit.
Underwriting an Owners and Contractors Protective Liability policy involves identifying the exposures, analyzing the exposures, classifying the risk, and rating and pricing the exposures appropriately. Rating an OCP is spelled out in ISO General Liability Manual Rule 46. All of the classifications are listed along with explanations. This has been a brief overview of this coverage. A thorough discussion of the coverage form may be found in the PF&M Analysis from The Rough Notes Company.
The Agency OnLine subscribers, please refer to PF&M section 271.4-2 Owners and Contractors Protective Liability Coverage Analysis for a more in-depth discussion. *