Workers’ compensation benefits are paid to employees injured at the workplace and provide wage replacement and medical coverage. To prevent fraudulent claims, the system uses processes such as independent medical review to establish the genuineness of the injury. Typically, injured employees cannot sue their employer for the “tort” of negligence. They can file a lawsuit against an employer only if the employer does not carry the proper workers’ compensation insurance coverage, or if the employer intentionally causes harm to the worker. The construction industry is a high-risk industry with huge construction projects that prove daunting even for highly experienced contractors. Despite all the safety measures, accidents can happen at construction project sites and therefore it is important to ensure that each person working on the project is properly insured. Insurance programs include Owner Controlled Insurance Programs (OCIPs) and Contractor Controlled Insurance Program (CCIP). As in any insurance program, eligibility for any benefits claimed by covered parties, is based on a comprehensive medical record review.
MOS provides cost-effective medical record review services for insurance attorneys and insurers.
Coverage Offered by Cost-effective Wrap-up Insurance Programs
OCIPs and CCIPs, also known as “wrap-ups,” provide the following types of coverage for all or a majority of the parties involved throughout the length of a construction period:
- General liability insurance, that offers broad coverage for liability risks for the project including physical injury and property damage claims resulting from the covered participant’s activities at the jobsite.
- Workers’ compensation insurance that covers all employees of enrolled contractors and sub-contractors.
- Excess liability coverage, or additional coverages beyond the limits of general liability insurance. A participant’s commercial general liability may be limited to $1 million. But his/her excess liability insurance may provide up to $ 10 million or more of liability protection, above and beyond the coverage provided in the general liability insurance. This policy pays after the coverage has been exhausted.
OCIP is sponsored by the construction project owners whereas CCIP is sponsored by a general contractor. The sponsor secures, pays for, and administers the insurance program. These programs don’t require each participant to be responsible for obtaining their own insurance. Wrap-ups are loss-sensitive, and the eventual insurance costs for a project will be directly related to the claims activity and project costs. To achieve cost savings, a comprehensive safety plan has to be implemented.
CCIP More Popular than OCIP
Nowadays, CCIPs seem to be more popular than OCIPs mainly because general contractors who are the sponsors of the former can usually achieve better results. This is because general contractors run safer projects, driven by the prospect of increasing their profits on a job by running a successful CCIP.
Let us examine some main features of Contractor Controlled Insurance Program CCIP.
- Participants in this program typically include all contractors and subcontractors involved in the construction project.
- Though architects and engineers may also be covered under CCIP insurance, these entities will have to purchase their own professional liability coverage.
- CCIP will not cover vendors, suppliers, and material dealers, and may exclude contractors that handle hazardous materials.
- CCIP can be purchased for individual projects or on a rolling basis, in which covered projects are aggregated over a specified period.
- This insurance program costs less compared to when every contractor on the job purchases the same coverage individually.
- Contractors and subcontractors cannot pass along their insurance costs for the job to the general contractor.
- On the other hand, general contractors will reduce the payment amount for each contractor/sub-contractor to reflect the cost of the CCIP.
- To participate in this insurance program, all parties must agree to and accept the conditions of the CCIP contract.
CCIP Benefits for General Contractors
What benefits does the general contractor stand to gain with a CCIP?
- Provide sufficient coverage: General contractors need not be concerned that individual contractors/subcontractors on the jobsite have insufficient coverage for the project.
- Focus on safety: CCIPs allow the general contractor to create a comprehensive and centralized safety program. This is important with regard to achieving the cost savings a CCIP can offer. The opportunity for savings/profits on the project offered by a CCIP motivates general contractors to improve safety standards even more.
- Avoid duplication: This insurance policy helps avoid duplication of coverage that may lead to litigation between insurance payers when claims are made. Since one insurance carrier responds to all the claims, there is no occasion to allocate fault.
- Control ensured: The CCIP purchaser controls costs, claims process, coverage terms and conditions, and loss prevention. Safety and loss control are the primary motivations during contracting, subcontracting, and procurement.
- Savings: A CCIP typically costs less than purchasing individual policies. All participants are covered equally even if they maintain their own policies. Policy owners stand to save around 30% to 40% on premiums with this program. The general contractor could benefit from project insurance cost reduction by up to 50% compared to conventional contractors’ insurance.
- Simplifies the claims management process: Since there is one broad policy, and one insurance carrier, claims processing is streamlined. The CCIP will handle claims that arise out of construction operations, and also completed operations for a specified period. With a CCIP in place, all claims and losses are handled by the general contractor through the CCIP insurance carrier. Contractors can avoid dealing with multiple lawyers, defendants, and carriers with conflicting interests because the claims are handled by a single insurance company and a single law firm.
CCIP Can Offer Workers’ Compensation Immunity
A CCIP may be able to provide workers’ compensation immunity for claims by injured employees of subcontractors. Consider a situation when an employee of a subcontractor is injured and he/she then sues the prime contractor. Typically, the subcontractor is the employer here, and the injured employee’s claim is limited to workers’ compensation benefits for injuries and lost wages. The employee may sometimes choose to sue the prime contractor and other parties who he/she believes may be responsible for their injuries to claim additional compensation for his/her damages. However, a Connecticut Supreme Court decision made recently extended the workers’ compensation immunity to a prime contractor who had procured a CCIP policy for the project. The case in question is Gonzalez v. O and G Industries Inc. 322 Conn 291 (2016), as referred in a recent National Law Review post.
- In this case, two of the injured employees who were the plaintiffs in the case recovered workers’ compensation benefits from the CCIP workers’ compensation policies issued in their employers’ (a contractor and a sub-contractor) names, including medical expenses and lost wages.
- Then they brought a lawsuit against the prime contractor looking for additional recovery for their injuries.
- The prime contractor argued that it was entitled to immunity under Connecticut’s workers’ compensation law if it “has paid compensation benefits under this chapter to such injured employee or his dependent for the injury or death which is the subject of the action.”
- The prime contractor maintained that it had immunity because it had paid for the CCIP that included the workers’ compensation policies for the plaintiffs’ employers, and because it paid the workers’ compensation policy deductible as well as the claim handling fee for the lower tier employees’ claims.
- The Connecticut Supreme Court examined the phrase “paid compensation benefits” to determine whether the prime contractor was entitled to immunity from the lawsuit under the workers’ compensation statutory scheme.
- The Court found that there was no dispute that the prime contractor had borne all the costs including the workers’ compensation premium, deductible, and claim handling fee.
- The Court determined that the prime contractor met the statutory language and was entitled to immunity from the suit filed by the lower tier employees.
As providers of medical record review for attorneys, we understand that contractor controlled insurance programs may not be appropriate for all contractors. A contractor purchasing this insurance must be able to handle significant risk because these programs may have very high deductibles ranging from $500,000 to $1 million per claim. Experts in the field believe that projects valued between $30 and $40 million or more are better suited for wrap-up policies. The contractor must also have excellent focus on safety, a flourishing business, and the ability to tolerate high risk. CCIPs can be complex, and must therefore be handled with extra caution and care by all parties concerned. Once a claim is made, it sets into action a sequence of processes, starting with medical record review to determine the claimant’s eligibility for coverage.