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A Tale of Two Owners: When an Owners and Contractors Protective Policy Is Not Enough

Man in construction hate shaking another man's hand with two onlookers.

Once upon a time there were two brothers, John and Michael, who were both new to real estate development. They each purchased a parcel of vacant land adjacent to each other with the intent of building six-story apartment buildings. Both brothers hired a general contractor (GC) to oversee construction activity; entered into a contract containing hold harmless, indemnification and additional insured language in their favor; and were included as additional insureds (AI) on the GC’s general liability policy. They both knew their AI status would not protect them completely throughout the course of construction, so the brothers obtained additional insurance options. 

  • John’s GC purchased an Owners and Contractors Protective (OCP) policy in John’s name.
  • Michael consulted with his insurance broker and purchased an Owner’s Interest policy.

Unforeseen incidents bring the brothers’ coverage into play

During and after construction, several issues occurred that brought their coverage into play, and the brothers learned what their policies truly covered. One of them had to learn the hard way. 

Within the first weeks of the project, a terrible ice storm caused pedestrians to slip on John’s property and on Michael’s. Were both of them covered? 

  • John was not covered. Because John’s OCP covered premises liability only in relation to construction activities, John did not have coverage for the accident. 
  • Michael was covered. His Owner’s Interest policy provided full premises coverage. 

Several weeks later, the spring weather allowed construction to continue. The contractors were rushing to make up for lost time and left their tools on the sidewalk. On John’s property, a pedestrian tripped over a hammer.   

In this case, John’s OCP policy coverage was triggered because the accident was a result of construction activities. Thankfully, the rest of the construction was completed with no further incidents. 

The brothers face post-construction coverage needs

After construction was completed, the brothers both decided that managing apartments would be too much for them and converted their apartment buildings into condominiums. It didn’t take long for all of their units to sell. But, about a year after completion, both John and Michael received urgent calls. 

  1. At John’s building, there was a major leak in the roof from a construction defect. The leak caused damage in multiple condo units, amounting to several thousand dollars in repairs. John’s OCP did not include coverage for completed operations, so no coverage was triggered.
  2. Next door at Michael’s, things were even more serious. A condo unit owner was out on the balcony enjoying the weather when, suddenly, the balcony collapsed, leading to very serious injuries. Thankfully, Michael had included extended completed operations coverage that was offered in his Owner’s Interest policy for six years after completion of the project, which was the statute of repose for related claims. 

What did John and Michael learn?

  • An owner needs to make sure the right amounts and types of insurance coverage are in place for their premises to cover perils not directly related to construction. 
  • An owner needs to make sure to have insurance coverage for construction defects that are discovered after construction is complete. 
  • Because an owner has exposure to construction defect incidents for several years after completion, the owner should consider coverage for completed operations up to their state’s statute of repose. 

To learn more about the differences between OI and OCP insurance, download Argo Construction’s OI/OCP highlight sheet, which features a coverage comparison chart, appetite details and coverage highlights. 

Visit Argo Construction for more information about Owners and Contractors Protective Liability and Owner’s Interest coverage. 

The information contained in this article was compiled from sources believed to be reliable for informational purposes only. Any and all information contained herein is not intended to constitute advice (particularly, not legal or risk management advice). Accordingly, if you should require such advice, please consult with the appropriate advisers. The accuracy of this information is not guaranteed and Argo Group US Inc. and its affiliates assume no liability in connection with this article. Neither Argo Group Us Inc. nor its affiliates undertake any obligation to publicly update or revise any of this information, whether to reflect new information, future developments, events or circumstances, or otherwise. The subject matter of this article is not intended to be construed as a solicitation, offer, advice, recommendation, or any other service with regard to any type of insurance product underwritten by individual member companies of Argo Group US Inc.

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