The OCP policy's second coverage

Insuring agreement

Exclusions

Supplementary payments

Who is an insured

Limits of insurance

Conditions

Definitions

Endorsements

Coverage for Operations of Designated Contractor

The OCP policy is issued to the person or organization desiring this coverage.  In comparison to additional insured status, the OCP policy provides primarily vicarious liability coverage solely for ongoing operations. One of the advantages of the OCP policy, unlike additional insured status, is that coverage automatically applies on a primary basis. This is not to say that an additional insured cannot obtain coverage on that same basis. The problem is that primary coverage is not automatic. It has to be prescribed in a contract or agreement with an insurer willing to provide the coverage.

While the OCP policy automatically applies on a primary basis, coverage is not guaranteed. To obtain coverage, the OCP policy's named insured must be free from any fault, other than for its acts or omissions having to do with the general supervision of, for example, the subcontractor who purchases this policy for the benefit of an owner and/or general contractor. If a subcontractor or its employee(s) allege negligence of the OCP policy's named insureds, however, coverage will likely fail.

 Introduction

The owners and contractors protective liability (OCP) policy is not intended to be a broad and all-encompassing form of protection. In its purest sense, the policy is primarily intended to provide some limited coverage to those named on the policy (named insureds) for their vicarious liability. For example, liability imposed on an owner or general contractor for acts arising out of the operations of independent contractors or subcontractors, or out of the owner's or general contractor's supervisory activity. Thus, coverage applies for the actual or alleged liability of those named on the policy that are alleged to be liable for the acts or omissions of those furnishing the policy and performing services for them.

Frequently, the need for OCP coverage is not clear because it may be difficult for many people to realize, for example, that an owner of a piece of property on which a building is being constructed may be held liable for the acts of the contractor handling the construction. A common belief is that the contractor, because he is performing the work, is the only party responsible for injuries or damage arising out of that work. Another similar belief is the idea that the general contractor cannot be held liable for the acts of a subcontractor because the subcontractor is the party actually performing the work.

Companies that install and/or inspect elevators commonly furnish these policies to property owners as an alternative to naming owners as additional insureds on their commercial general liability policies. Various property owners, particularly governmental agencies, will also request these policies, or are given a sales pitch to rely on these policies instead of requesting additional insured coverage when work is to be performed for them by contractors.

If the prospects for the OCP policy understand and are comfortable with the fact that coverage will not apply for their own acts or omissions (with one slight exception for certain insureds,  mentioned later), but only for the acts or omissions of those performing the work or services, this policy can be a suitable form of protection. In fact, it is an ideal form of protection for situations involving property damage.

The problem is that named insureds on these policies have no control over what can bring about a claim or suit against them, and it is usually with bodily injury where claims arise. In fact, once an allegation is made by a contractor or its employee concerning an injury caused by an act or omission of the policy's named insured or its employee(s), there is little hope that the OCP policy will respond. In other words, the OCP policy's named insured has to be almost totally innocent of any act or omission or the policy will be useless—and it usually is in allegations of bodily injury.

It may be questioned that if the OCP policy is that bad, would being an additional insured be a better alternative? The answer will depend on (1) whether any entity would be willing to give an additional insured endorsement; and (2) the scope of the additional insured endorsement. It is not often the case, but sometimes an elevator inspection company, for example, not only will furnish a property owner with an OCP policy, but also will name the owner as an additional insured on the elevator company's CGL policy. Now, why an elevator company or any other business will relent and furnish both forms of protection is open to question. Presumably, it is because the company will lose the business if it does not compromise and offer the property owner what appears to be the more comprehensive approach toward inspection. However, it should not come as a surprise to learn that there may be an other insurance issue. In fact, one blanket additional insured endorsement issued on behalf of an elevator company states that the general liability policy to which the additional insured endorsement is attached does not apply to any person or organization for which the policy's named insured has procured separate liability insurance while the endorsement is in effect. This means the OCP policy remains as the only document that applies on a primary basis.

The following case makes the point.

Town Center Mall v. Zurich American Insurance Company, 797 F.Supp.2d 786 (2011) involved an employee (inspector) of Schindler Elevator Corporation, who was injured while working at a shopping mall. To complete his inspection, the inspector had to step on the escape hatch located at the top of the freight elevator. However, the welds securing the escape hatch were broken, causing the inspector to fall through the ceiling, suffering serious injuries. Twice prior to this event, the state had cited the mall's freight elevator for broken welds on that particular  hatch. The insurer for the elevator inspection company's general liability policy made coverage subject to a blanket additional insured endorsement covering only those persons or organizations where required by written contract. This same insurer also issued an OCP policy to the mall's property management company.

When the property management company sought coverage for defense against the suit filed against it by the injured inspector, it was denied both under the OCP policy issued to it, and the GL policy issued to the elevator company. The reason coverage was denied by the OCP policy was because the allegations made by the injured inspector of (1) negligence by the property management company in failing to repair the hatch, and (2) in failing to warn about its defective condition despite two citations, clearly fell within exclusion d. of the OCP policy, which read: "This insurance does not apply to. . . Acts or Omissions by You or Your Employees."

From the United States District Court's perspective, the insurer had met its burden of proving an applicable exclusion and the property management company could not prove an exception to that exclusion. With the issue of the OCP policy out of the way, the court's next task was to determine if the property management company was an additional insured for purposes of the GL policy issued to the elevator company.

The blanket additional insured endorsement, as described by the court, was somewhat confusing. This endorsement was written to include as an additional insured, "the person(s) or organization(s) shown in the Schedule, but only with respect to bodily injury, property damage or personal and advertising injury caused, in whole or in part, by 1. Your (elevator company) acts or omissions; or 2. The acts or omissions of those acting on your behalf in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above." So far, coverage was available to the additional insured for its partial fault. However, the court also mentioned that the endorsement specifically applied solely to the negligent acts, errors or omissions of the named insured, which contradicted the language in the first part of the endorsement. How the endorsement might have read did not matter, since, in the words of the court, the property management company seeking additional insured coverage did not meet the causation requirement of the general liability policy. In other words, coverage might have applied had the named insured (elevator company) been negligent, but there were no such allegations of fault.

In the final analysis, the insurer of both the OCP and CGL policies had no obligation to provide defense or indemnity in this action.

 The OCP Policy's Second Coverage

As mentioned, the OCP policy is ideal for claims involving property damage to the property of others occurring while work is in progress given that this policy provides no completed operations coverage. But that is not the end of the matter. To this point, only one of the OCP policy's coverages has been discussed, and there is another one. The second coverage, however, applies only when the policy's named insured is performing general supervision of the work and negligently causes injury; in other words, when the named insured is solely at fault. Considering that owners do not normally supervise the work of contractors, this second coverage typically is the general contractor's role and is important only to the extent responsibility for the general supervision of the work is accepted by the general contractor. It is not common, furthermore, to see cases where this second coverage is triggered under the OCP policy. This is not to downplay the significance of this second coverage because it is important, but it is not often triggered.

 Insuring Agreement