Insuring Construction Projects Under a CCIP

Construction projects are inherently risky, which makes having the right insurance coverage crucial for all parties involved. However, contractors often face high costs and considerable red tape when dealing with insurance providers. A possible solution to this challenge is a Contractor-Controlled Insurance Program (CCIP).

What is a CCIP?

CCIPs are a type of “wrap-up” policy managed by the general contractor that covers most parties involved in a construction project. However, it usually does not cover design professionals, such as architects and engineers. Typically, CCIPs include general liability, workers’ compensation, and excess liability coverage. There may also be options to add other types of coverage, such as builder’s risk, professional liability, or pollution liability. It’s important to note that insurance for commercial vehicles and equipment is generally not included.

What are the advantages?

Normally, each contractor and subcontractor on a project purchases their own insurance policies, which require each subcontractor to name the general contractor and owner as “additional insureds.” Each subcontract also includes complex indemnity provisions. This system can lead to overlapping coverage and gaps in insurance, resulting in disputes and delays when claims arise.

By consolidating coverage under a single CCIP, parties can avoid these gaps and minimize disputes over responsibilities in the event of incidents. The general contractor may also negotiate broader coverage, higher limits, and lower premiums than subcontractors could secure on their own.

Moreover, by eliminating the need for subcontractors to obtain their own insurance, a CCIP can widen the pool of potential bidders at a time when skilled labor is in short supply. Once the project commences, the general contractor has significant control over all facets of risk management, including insurance. Because CCIPs are highly sensitive to losses, general contractors are motivated to minimize claims through a well-organized and enforced safety program. If a claim does occur, having a single administrator can expedite the claims process and reduce associated costs.

What are the disadvantages?

As expected, there are risks and costs associated with setting up a CCIP for the general contractor. While the program can streamline insurance administration in the long run, the initial process of finding and negotiating coverage can be overwhelming. Given the complexity of CCIPs, many contractors find them suitable only for larger projects.

Managing the enrollment of subcontractors can also be a challenging task, and the subcontractors who participate may pose additional risks. Since they do not have their own insurance policies, subcontractors may be less incentivized to control their losses. Additionally, because CCIPs are essentially “no-fault” policies, meaning coverage is provided regardless of fault, subcontractors might be more inclined to file false claims.

There is also a financial risk to consider. If claims exceed the CCIP’s coverage limits, the general contractor could be financially responsible for the excess amount.

Who can help?

If you’re interested in enhancing project risk management, reducing insurance costs, and streamlining claims, consider a CCIP. However, keep in mind that we have highlighted only a few potential disadvantages; there may be others to consider. Contact our firm for assistance in evaluating all the pros and cons of a CCIP.