Legal Issues with Obtaining Insurance for Large Transit Projects (2014)

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22 policy or, alternatively, by retaining the risk and allocating funds to meet expected losses through formalized programs. Examples of such formal- ized programs are “self-insurance” or “captive in- surance.” Self-insurance in this context is more formal and disciplined than assuming risk in an insurance policy through a deductible or so-called self-insured retention. It usually entails dedicated funding and accounting recognition, like a re- placement account or a “self-insurance account.” A captive68 is a special type of insurance company set up by a parent company, trade association, or group of companies to insure the risks of its owner or owners. Commercial insurers represent the best known source for owners and contractors to transfer risk. They are licensed and regulated firms formed spe- cifically for insurance operations. The transfer vehicle is the purchase of an insurance policy, a contract under which the insurer agrees to pay for specified losses the insured may suffer, up to specified amounts, under conditions specified in the policy contract, in exchange for the payment of a premium. The insurer aggregates premiums to pay for losses, to deliver risk management ser- vices, to develop capital for catastrophic losses, and to earn a profit. Similar loss protection or coverage can be ob- tained through group pooling arrangements, or- ganized as group captive insurance companies, joint purchasing authorities, risk retention groups, pools or trusts, and other alternative structures. In certain extreme cases, the federal govern- ment can be a source of external risk financing. Following a Presidential declaration of a disaster, the Federal Emergency Management Agency (FEMA) or, more recently, the FTA, can provide public assistance (FEMA) or emergency relief (FTA) to transit agencies suffering program- eligible losses as the result of a declared disas- ter.69 The range of internal risk financing resources runs the gamut from the simple retention of loss, funding losses through operating funds, through the formal, identifying and funding for certain 68 At this time, we are aware of two transit agencies that have formed captive insurance companies for part of their insurance needs. The Port Authority of New York and New Jersey and New York’s Metropolitan Transportation Authority have both created single par- ent captives and are actively retaining risk. 69 49 U.S.C. § 5324, as amended by MAP-21, author- izes a Public Transportation Emergency Relief Pro- gram. loss potentials, to the extremely formal, creating a single parent captive insurance company. Similarly, transit agencies and the various con- tracting parties in a large project can use both internal resources and external resources to assist with the risk management, risk financing, and insurance program. Internal staff may include dedicated risk management staff or safety staff, as well as related specialists in engineering or capital projects departments. External resources include insurance brokers or agents that place coverage and provide related support services, including controlled insurance program (CIP) administration, loss prevention services, and claims services. Other external re- sources include consultants in various disciplines, including general independent risk advisory, claims, safety, and legal services. Claims handling can be provided by so-called third-party adminis- trators (TPAs), who may or may not be associated with the insurers or insurance brokers involved. V. TYPES OF AVAILABLE PROGRAMS, POLICIES, AND COVERAGES This section surveys the insurance coverages and commonly available insurance products and insurance programs available to a transit agency in the current marketplace, with an emphasis on describing the exposures intended to be covered, the principal coverage terms, and the advan- tages/disadvantages of the product or program approach. Insurance Approaches: Conventional Versus Controlled. There are two basic strategies to de- signing an appropriate risk management and in- surance program. In the traditional or conven- tional program, each of the contracting parties, as well as the owner, can provide agreed-upon cover- age. The alternative is to have one party, either the owner or the general contractor, procure, maintain, and control insurance-specific identified coverage and services for all the parties. There are three primary areas of insurance that are often procured and maintained in a con- trolled70 or coordinated program. These are 1) property in the course of construction or builder’s risk, 2) workers’ compensation and various liabil- ity coverages, and 3) design professional’s errors and omissions coverage. In the first case, each contracting party is re- sponsible for obtaining its own coverage as re- 70 Insurance- and risk management-related terms found in this section are defined in the IRMI Glossary available at www.irmi.com (use search engine).

23 quired under the contracts. Each designer or con- tractor provides the insurance and the cost of that insurance is part of the contract bid or cost. Once the contract is signed between the contractor and owner, the cost is subject to change only if it is part of a change order agreed to by the contractor and owner. The contractor retains the risk that its actual costs may exceed the contract cost and benefits if actual costs are less than expected. The owner retains the risk that coverage is insuffi- cient to pay losses or fund the contractual indem- nity. Monitoring insurance coverages is a signifi- cant burden. The traditional approach is fragmented, uncoordinated, and difficult to verify. • When the owner purchases the insurance un- der a coordinated program, it may be sponsored and controlled by the owner (OCIP), the contrac- tor/construction manager (CCIP), or a partnered approach (Partner Controlled Insurance Pro- grams). In an OCIP,71 the program design fre- quently incorporates an element of risk retention, in which the owner can share in the benefits of good loss experience or be penalized by poor loss experience. This risk taking may reduce the cost paid to the insurer in hard dollars, but introduces variability in the ultimate cost. A coordinated in- surance program provides an opportunity to con- trol both the administrative and cost elements of a large construction project insurance budget. • The advantages of these programs derive from the economies of scale in purchasing cover- age for the owner, general contractor or contrac- tors, and all subcontractors. This approach allows the owner to 1) obtain coverage that contractors and subcontractors might not otherwise be able to purchase, and 2) purchase this coverage at a more competitive cost. It also provides for consistent and comprehensive project management through the coordination of loss control, safety, security, claims processing, and other risk management activities. A. Lines of Coverage72 1. Commercial General Liability Third-Party Liability (General, Automobile, and Umbrella Liability) and Workers’ Compensa- tion Coverages. These coverages are generally re- 71 A detailed description of OCIPs and other con- trolled programs follows in § V.C. 72 A summary exhibit matching insurable exposures with various commercially available insurance products is contained in App. B. ferred to as casualty coverages. They address a wide range of third-party exposures. From an un- derwriting perspective, each of these exposures constitutes a separate division of insurance, but from the owner’s perspective the similarities in treatment warrant considering them together. Insurance textbooks would treat personnel loss exposures (workers’ compensation and employer’s liability) separately from general liability expo- sures, but the risk treatments are usually deliv- ered in a combined program by either the owner or the contractor. Therefore, we treat them to- gether here. General liability exposures arise from an indi- vidual’s or entity’s legal obligation for damages sustained by third parties for bodily injury or property damage that are the result of that in- sured party’s negligence. In construction projects, that liability can arise from design or construction activities. It can also arise from site conditions and activities on surrounding ways or properties. It can result from the completed operations or from products’ exposures after project completion. The exposed parties include everyone involved in the project, including the owner, the entire de- sign team, the contractors and subcontractors, and others such as the owner’s project manager, owner’s representative, or construction manager. The usual mechanism for covering this expo- sure is the CGL policy. This covers the insured for liability and defense related to 1) bodily injury, 2) property damage, and 3) personal injuries arising from occurrences or accidents. The typically excluded exposures are 1) liabili- ties arising out of the use of automobiles, aircraft, or watercraft; 2) liability for injuries to employees sustained while in the course of that employment; and 3) losses arising out of the exercise of profes- sional judgment or in providing professional ser- vices. The operation of automobiles or motorized con- struction vehicles presents an exposure for the same kind of bodily injury and property damage claims as the general liability. These are charac- terized as automobile liability exposures. The liability for injuries to employees is treated differently from an insurance standpoint. Em- ployers in almost every jurisdiction are obligated to either obtain statutory workers’ compensation coverage or qualify as a licensed self-insured em- ployer. This “no fault” scheduled compensation is considered the sole remedy for injured employees relative to their employers. However, under certain circumstances, injured employees can assert liability claims against

24 other parties for their injuries, including, for ex- ample, other contractors or subcontractors who may have caused or contributed to the injury, owners for site conditions or security issues, or design team members for errors or omissions. This presents a general liability exposure to those particular parties who may have recourse against the employer under a contractual indemnification. It is generally referred to as the third-party over exposure. Catastrophic bodily injury or property damage losses can strain the limits of coverage found in underlying insurance policies. One method for assuring significant liability protection in the face of such a loss is to purchase an umbrella or excess liability policy or policies. Such an arrangement supplements the underlying limits for general li- ability, automobile liability, and employer’s liabil- ity as well as other scheduled coverages, such as aviation or nonowned aircraft liability or marine or watercraft liability coverages, where such ex- posures exist. The Risk Financing or Insurance Treatment Options Include: • Traditional/Conventional Program of Con- tractor-Provided Coverage. Here each contracting party is required to carry specific limits of general liability, automobile liability, and workers’ com- pensation. Sometimes, an umbrella or excess li- ability coverage requirement is added. Additional requirements are imposed by contract to include 1) scope or breadth of coverage; 2) financial integ- rity minimums for acceptable insurers; 3) notice of cancellation or change provisions; 4) extensions of coverage for other parties (e.g., additional insured status); or 5) documentation of compliance, such as certificates of insurance. • OCIP.73 OCIPs apply to larger scale projects and include coverage for the owner, enrolled con- tractors and consultants, and enrolled subcontrac- tors of various tiers. The coverage provided typi- cally includes workers’ compensation, general liability, and umbrella liability. Sometimes pollu- tion liability is also provided. The same OCIP bro- ker may also procure errors and omissions cover- age or builder’s risk coverage, but those insurance policies are usually separate placements. There are a number of advantages and drawbacks asso- ciated with OCIPs. They all flow from the size, complexity, and loss-sensitive financial plan asso- 73 There are many resources in the literature describ- ing OCIPs and CCIPs and their advantages. See foot- notes in subsequent section. ciated with the OCIPs. It is likely that a transit agency will encounter an appropriate opportunity to use an OCIP (or other controlled insurance pro- gram) in large projects, as the accepted minimum size of a project is $100 million or greater with direct labor of $25 million or more. • CCIP. CCIPs have become more prevalent in recent years as many larger general contractors and construction managers have created their contractor-controlled versions. These mirror the OCIP concept but are managed and organized primarily for the benefit of the contractor. There are two versions. CCIPs can be characterized as “rolling” and be available for many projects with varying owners and applied to a wide range of projects in terms of both size and building type. The others are CCIPs that are implemented on an ad hoc basis for a specific and often large project. Transit agencies may see a CCIP offered in larger projects or where they engage a larger contractor or design-builder. • PCIP. A recent permutation of the CIP con- cept in the public sector is a so-called Partner CIP where the gains from bulk purchase, targeted safety efforts, and aggressive claims management benefit both the owner and the contractor on a scheduled arrangement. The same effect may be achieved under either an OCIP or a CCIP with some gain-sharing or an incentive program. • Owner’s and Contractor’s Protective Insur- ance. This is an older approach to providing in- surance protection to the owner for losses arising out of the activities of contractors or others acting on the owner’s behalf. In the 1970s, this previ- ously separate coverage was melded into most general liability policies, which is the case today. Some underwriters still offer the coverage, and some contractors and their brokers represent it as an additional layer of protection for the owner. Some owners74 continue to require the coverage in their standard construction contracts. In most cases, the coverage is redundant and potentially causes problems with the other insurance clauses found in other liability policies, which treat the possibility of more than one liability insurance policy as being primary. The result is having to 74 In some jurisdictions, where the courts have fol- lowed a so-called “horizontal exhaustion” theory of ap- plying insurance limits, owners have sought to address potential contribution from their operational insurance by requiring OCIP coverage. This topic is beyond the scope of this digest, but is treated extensively in the literature. For an example, see http://www.irmi.com/ expert/articles/2007/rawls07.aspx.

25 contribute limits from different insurers, compli- cating defense representation. • Railroad Protective Liability. Construction operations on or around a railroad right-of-way may require a specific liability policy known as railroad protective liability. Railway operators may impose certain conditions through an ease- ment or other agreement. Certain underwriters make the coverage available to their contractor clients as either a separate policy or an endorse- ment to the general liability policy. Owners may need to secure the coverage as well. The primary treatment of the owner’s exposure to third-party liability losses is to transfer it to the contracting parties that control the risk. This is accomplished by appropriate indemnity and similar limitation of liability clauses in the vari- ous contracts. This protection is primarily funded by the program of insurance required of the con- tracting parties through the various design and construction and service contracts. The contingent funding source would be the assets of the indem- nifying party. • The secondary treatment of the owner’s expo- sure is the insurance protection it enjoys from 1) its operational insurance program, 2) its insured status under either an OCIP or a CCIP, or 3) any additional insured status75 under a designer, con- tractor, or consultant liability policy. • Covered parties can include every party in- volved in the project. The means for obligating the various parties is through the contract’s indem- nity and insurance terms. Each contracted party should have requirements for the types of cover- age to be carried, the limits to be carried, and other conditions, regardless of whether the chosen vehicle for coverage is 1) the traditional contrac- tor-provided method, or 2) a controlled insurance program. Limits to be required in the contracts depend on the risk assessment related to the project. For workers’ compensation, all contracting parties should be required to carry coverage discharging their statutory obligation, which for large contrac- tors may include licensed self-insurance. While there are certain minimum thresholds for liability and automobile liability, the required limits re- flect the surrounding exposures, the extent of ex- posure to the public, the complexity and duration of the project, and similar factors. Higher limits 75 There is discussion of the efficacy of the “addi- tional insured” status in § V.B of this digest. may be secured through a combination of primary policies (general liability and automobile liability) and excess policies (umbrella liability). The costs of this coverage are passed on to the owner in the various contracts, either as part of overhead or as a separate reimbursable expense. In many cases, a transit agency will have no knowledge of those costs and little or no control over them. One exception to this is when higher limits, such as above $25 million for commercial general and umbrella liability, or specialized cov- erage, such as railroad protective or watercraft liability, is required. In such cases, the contract- ing party may explicitly identify the additional costs in their bids or proposals, either on a firm basis or as an estimate, allowing the agency to decide if the additional expense is warranted by the additional protection. When alternative ap- proaches are available, the risk management as- sessment process should compare the various costs and benefits of the alternatives. • One frequent issue transit officials are con- fronted with relates to whether all subcontractors should be subject to the same insurance require- ments, including liability limits, as the general contractor or construction manager. There are contractors and their advisors who recommend that all tiers of subcontractors, irrespective of trade, size of contract, or hazard, carry the same limits of coverage. This approach may be unneces- sary, adding to the owner’s cost without signifi- cant additional protection to the owner and limit- ing the pool of qualified subcontractors. The owner could decide that the matter of the limits to be carried by subcontractors is between the con- tractor and its subcontractors and is primarily a business decision for their negotiation. The owner is protected by the indemnity (and potentially through corresponding insurance) from the GC or CM that is responsible for the losses caused by its subcontractors. To the extent that the indemnity from the GC or CM is enforceable and backed by sufficient insurance, additional insurance carried by the subcontractors has little additional protec- tion value, since the additional limits are priced at primary layer prices and the costs are passed on to the owner through the contract. If a high limit for catastrophic events is the goal, it is cheaper to buy a single high limits tower of cover- age.76 76 As noted earlier, there are jurisdictions that im- pose a “horizontal exhaustion” approach to coordinating available limits for upstream and downstream con- tracted parties. In these cases, there is some merit to requiring subcontractors of every tier to carry specified

26 • General liability and umbrella or excess cov- erage should be written on a so-called occurrence form, which responds to occurrences during the policy period regardless of when they are pre- sented to the insurer. The alternative, known as the claims made form,77 responds to claims made while the policy is in force, subject to other re- strictions such as a retroactive date. This form is more difficult for a transit agency to verify and manage and is infrequently offered. • It is likely in today’s insurance market that general and umbrella liability will be written with some sort of policy aggregate on the limit. En- dorsements are available to most contractors that convert the policy aggregate to one that applies to each project or location. This should be required at a minimum in the general liability policy. In its absence, the assessment of the risk may dictate a higher limit requirement. In such cases the um- brella limit can off set this limitation. • Most CGL policies have a broad coverage grant. They typically respond to the insured’s le- gal liability for bodily injury, property damage, and personal injury liability, however incurred.78 That means it responds to those liabilities 1) di- rectly incurred through the insured’s activities; 2) vicariously imputed through the conduct of agents, contractors, or others employed on the insured’s behalf; and 3) assumed by contract. As a result, transit officials do not have to look for separate or endorsed coverage for contractual li- ability79 or owner’s and contractor’s protective (vi- carious coverage for the actions of others)—the coverage is already included in the CGL policy. General liability and umbrella or excess liabil- ity policies are akin to “all risk” policies, but the real test of the breadth of protection afforded by one of these policies is to understand the exclu- sions in place. This requires first-hand knowledge of the actual insurance policy. The owner has two liability limits, and such requirements benefit the prime contractor as well. 77 On the other hand, professional liability coverage is exclusively provided on a claims made form. This requires additional requirements in the contract to as- sure that coverage is in place when claims are likely to be made. See the professional liability discussion later in this digest in § V.A.3. 78 Coverage is conditioned by the terms of the policy, which includes the notion of an accidental or unex- pected injury arising out of an “occurrence” or accident. 79 Contractual liability refers to bodily injury, prop- erty damage, or personal injury liability assumed under contract. It does not refer to claims for a breach of con- tract. options to understand the contractor’s coverage: 1) transit agencies can require copies of the policies and review them, or 2) they can require disclosure of the relevant exclusions prior to entering the site or disclosure on the required certificates of insurance. Many organizations routinely require all con- tractors or consultants to add the organization as an additional insured under a wide range of in- surance policies. This often appears to be required without much thought as to the function of the additional insured protection. In fact, while there has been much discussion and writing about being an additional insured,80 the extent of coverage has changed over time and may have limited value to a transit agency. In practice, the only two cover- ages where a transit agency can expect to be added as an additional insured are CGL and um- brella or excess liability policies. We suggest the following considerations: • Agencies should consider not seeking addi- tional insured status on workers’ compensation policies. First, underwriters will resist doing so. Second, there may not be real protection from do- ing so. The transit organization is not the em- ployer in the case of workers’ compensation. • Agencies should not seek additional insured status on professional liability policies. Under normal circumstances the transit agency does not owe any professional duty to third parties in the case of professional liability. In fact, some argue that being an additional insured under a design professional liability policy might impair coverage for a claim made by the owner. So, there is no benefit to the agency. • Transit agencies can insist on appropriate and clear indemnity agreements in their favor, supported by reasonable and broad insurance pro- tection, including contractual liability coverage from the contracting parties, as the primary layer of protection. • Transit agencies may require additional in- sured status under general and umbrella or excess liability policies. However, they should be aware that coverage is generally limited to losses arising 80 An indepth treatment of the evolving and contro- versial use of additional insured status as a risk treat- ment is beyond the scope of this digest. From an insur- ance perspective, one of the more authoritative sources is Donald S. Malecki & Jack P. Gibson, The Additional Insured Book (International Risk Management Insti- tute, 2014).

27 out of the negligence of the named insured, so there likely will be no coverage to the agency in the absence of a contractor’s negligence.81 Addi- tional insured status is not a substitute for an owner’s own general liability policy or an enforce- able and financially supported indemnity.82 • When an owner decides to use an OCIP or a CCIP, the various contracts should contain consis- tent language outlining the coverages to be car- ried and the limits provided by the contractors in the absence of the OCIP or CCIP. There are three reasons for this. First, there are certain coverages, such as automobile liability and workers’ compen- sation/general liability, for off-site activities that typically are not included in the OCIP/CCIP. Sec- ond, there will be some contractors, in larger pro- jects or under alternative project delivery ap- proaches, that are not enrolled in the OCIP/CCIP. Third, conditions change and the OCIP/CCIP may be canceled or not implemented. Consistent terms provide an appropriate fallback position. In Alpha Const. and Engineering Corp. v. In- surance Company of the State of Pennsylvania,83 the plaintiffs, consulting engineers, sought cover- age for an accident occurring on the transit pro- ject. The Maryland Transit Administration (MTA) OCIP provided general liability, workers’ compen- sation, and excess liability coverage for all con- tractors and subcontractors that were performing work at the contract site. The court determined that, although the plaintiffs might appear to be named insureds under the owner’s CGL policy, they were excluded from coverage by an endorse- ment. The court found that the plaintiffs were not enrolled in the MTA OCIP program and in addi- tion, pursuant to the term of the contract, the con- 81 Among the many restrictions added to both indus- try-standard (ISO) and individual insurer (proprietary) endorsements over the years is language that limits coverage to insured liabilities that are “caused” by acts or errors of the Named Insured, precluding any cover- age for the negligence or strict liability of the Additional Insured. 82 Additional Insured endorsements are not all alike. There are many versions of the endorsement published by ISO with different dates, and many insurers issue their own proprietary versions. Assuming the scope of Additional Insured Status without analyzing the actual endorsement language is unwise. Typical limitations include damage to the insured’s property, restricted products and completed operations coverage, cross suits (additional insured versus named insured) exclusions, and explicit professional liability exclusions. 83 601 F. Supp. 2d 684 (2009). sulting engineers were required to obtain their own workers’ compensation coverage. Damage to Property in the Course of Construc- tion and Consequential Loss In every transit construction project, there is the potential for damage to property. The exposed property includes: • The work or project itself. • Owned, rented, or leased real and personal property (or contents). • Tools, equipment, and temporary structures. • Construction materials and other compo- nents, both on and off site, that are intended to become part of the project. There are various ownership or insurable in- terests exposed, including: • The owner’s. • The lender’s (if such project financing is used). • The contractor’s and subcontractors’. • Those of the other parties on site. The property is exposed to all the same perils or causes of loss as existing structures, such as fire, wind, water, etc. It also is exposed to in- creased peril, such as collapse, human actions, design defect, and construction error or faulty workmanship. Risk Financing or Insurance Treatment Options The typical options for insuring the property and consequential loss exposure include: • Extension of Entity’s Existing Property Insur- ance Coverage. In this case, the owner/agency would use an existing operational property policy to provide the coverage. This approach requires the transit agency to extend the operational in- surance policy or program to cover property dam- aged in the course of construction with appropri- ate limits and coverage terms. When faced by repair, renovation, or addition projects, this can be the preferable approach, as it reduces the po- tential for an uninsured loss if different under- writers are insuring common elements of the loss. • Stand-Alone Builder’s Risk Secured by Owner/Entity. In this option, particularly where a transit agency’s property policy cannot or does not apply to the course of construction risk, the agency could secure a separate builder’s risk pol- icy specific to the project. This may be an accept- able alternative when the project is a separate and new structure.

28 • Contractor-Provided Stand-Alone Builder’s Risk. In certain cases, a contractor may provide a separate builder’s risk policy, covering both the contractor’s and the owner’s interests, with terms and conditions tailored to the specific project. Careful attention to the terms and conditions, in- cluding the breadth of protection afforded to the owner and the lenders (if any), is important. • Contractor-Provided “Master” Builder’s Risk Coverage. Some larger general contractors and construction management firms have blanket pro- grams with an underwriter covering all their pro- jects, subject to common terms and conditions. While this may be an acceptable alternative, tran- sit agencies should be attentive to the coverage period and limits and breadth of coverage, to be sure it meets the needs of their specific project. In deciding among the various alternatives, transit agencies should weigh the costs and bene- fits each approach provides. In reviewing those factors, transit agencies can consider the follow- ing: • Limits should be sufficient to cover the prob- able maximum loss (PML) from an insured loss. This is particularly important when an existing structure is being renovated. The limit should ap- ply to each loss. For stand-alone builder’s risk placements, the policy should be written on a completed value basis with an amount sufficient to capture the completed value after all change orders. Transit agencies may wish to avoid the alternative, the reporting form, to avoid the possi- bility that sustained damages exceed the amount reported, resulting in uninsured damages. • Loss valuation should be replacement cost for all damaged property, and, in the case of existing structures, not apply on an actual cash value ba- sis, where a deduction for physical depreciation and deterioration can leave a significant shortfall in a recovery. Perils to be covered should be all risk of loss, including earthquake and flood84 where a transit 84 Insurance companies use exclusions and other conditions to limit their exposure in extreme events. One recent exclusion/limitation introduced in the in- surance industry has been to treat windstorm or named windstorm loss, which may or may not include resulting storm surge. Policies often contain a sub limit for such losses. Also, in certain states, such as California (earth- quake) and Florida (flood or windstorm), commercial carriers may exclude coverage for these perils com- pletely, which requires transit agencies to secure sepa- agency determines it is needed, as opposed to the named perils form. The earthquake (or earth movement) and flood coverage will carry an an- nual aggregate payment limitation. The breadth of coverage under this all risk form is determined by the exclusions contained in the form, so some analysis of the exclusions is recommended. The usual exclusions include: • War and nuclear hazards. • Governmental action. • Wear and tear, vermin, and wet and dry rot. Terrorism can be excluded from coverage. How- ever, certain public construction projects, such as terminals, stations, tunnels or bridges, may be considered targets. In such cases, public officials should decide to purchase terrorism coverage. • Interests covered should match the require- ments of the various contracts, including any lender or financing agreement. Where the inter- ests are not completely aligned with the risk allo- cation in the contract, one party may opt to obtain supplementary coverage. Examples include con- tractors securing installation floaters for materi- als and equipment off site before installation. Coinsurance should be 1) waived by the so- called Agreed Amount85 clause, or 2) deleted from the policy. This will eliminate any penalties (de- ductions) as a result of underinsurance. Deductibles should be reasonable relative to the ability of the responsible party’s financial abilities. Further, that responsibility should be clearly and consistently articulated in the con- tracts. • Transit agencies should consider making a single party responsible for securing coverage for property in the course of construction and that responsibility should be clearly articulated in the appropriate contract or agreement. rate policies from public sector or governmental sources. 85 A so-called Agreed Amount clause assures that there is no reduction in a loss recovery because of a failure of the policyholder to insure to value. A coinsur- ance provision requires the policyholder to insure to some percentage, such as 90 percent, of the replacement cost and reduces a recovery proportionately to the ex- tent of underinsurance. The “agreed amount” stipulates that whatever limit is purchased meets or exceeds the coinsurance requirement.

29 The option to extend an operational property insurance policy to cover property in the course of construction may be attractive to transit agencies for a number of reasons. Beyond assuring a con- sistent loss adjustment in the case of loss, the terms and conditions offered by an underwriter with a longer relationship with the transit agency are likely to be more favorable. Further, the or- ganization will understand and control those terms and conditions. One of the typical exclusions under any of the options is for loss from faulty work, defects, er- rors, and omissions. However, this exclusion is usually limited to the cost of correction and not a resultant loss. Where such resultant damage is covered, the owner will have a direct recovery from the property carrier and will not have to rely on the design professional liability except for the cost of correction. For example, if because of a de- sign error or faulty workmanship a building col- lapses, most property policies cover the collapse damage and exclude only the cost of the design error or the faulty workmanship. Similarly, if a faulty installation of electrical equipment results in a fire damaging the entire project, most prop- erty policies would be expected to cover the fire damage and exclude the cost of the improper in- stallation. • Most property policies, including the four op- tions enumerated above, allow an insured party to waive the insurer’s rights of subrogation in writ- ing prior to a loss. This allows an owner to waive its rights to recover from the contractor or de- signer if they caused the damage. The waiver of subrogation clause is almost universal and carries no premium charge, so a transit agency can lower the contractor’s risk (and presumably the cost of that risk) by executing the waiver. This preserves the contractor’s general liability coverage, which may be subject to a policy aggregate for other losses. Doing the same for the designers may preserve the limit of its professional liability coverage for the uninsured portions of the damage. However, transit agencies should verify that the property policy permits a waiver in the case of design pro- fessionals. Recently, some builder’s risk policies have eliminated the insured’s ability to waive its rights against the designer. • Officials should assess the exposure to conse- quential loss, such as additional expenses to com- plete a project after a delay or damage and addi- tional expense incurred to meet the expected use of the structure or lost revenue, and secure ap- propriate time element, business interruption, or income coverage. • Builder’s risk policies or commercial property policies should allow for occupancy or testing at the facility during the course of construction with- out any impairment of coverage. 2. Professional Liability Professional Liability or Errors and Omissions. Professional liability or errors and omissions86 coverage addresses the specialized exposures aris- ing out of the exercise of professional judgment or skills. In public construction projects, specific par- ties have professional liability exposures. Under the normal design–bid–build approach, the archi- tect and consultants have a fairly discrete profes- sional liability exposure. In the alternate project delivery systems, such as DB, the responsibility for professional services and the resultant liability for errors and omis- sions may be shared by the DB entity or team. Owners will need to address the professional liability risk for consultants in their roles as 1) owner’s project managers or owner’s representa- tives, 2) designers and their consultants, 3) cer- tain engineers, and 4) DB entities and teams. The exposures to loss may differ by degree, but they do not differ by kind. The insurance and risk treat- ments are similar for all these professionals. The exposures arise from three types of activi- ties: • Design functions. • Management functions. • Payment authorization functions. In theory, the duties (and therefore the expo- sures) are owed to a variety of parties, including the: • Owner. • Contractors and subcontractors. • Other design professionals and consultants. • Workers on site. • Surety companies. • Neighbors. • Other third parties. 86 The professional liability of design professionals, including architects, engineers, and their professional subconsultants, is covered under insurance policies that are characterized in a number of ways, including pro- fessional liability, design professional liability, archi- tects and engineers errors and omissions coverage, and other variations of this theme. In this digest, we use the terms interchangeably.

30 The above list is roughly in order of the distri- bution of claims frequency, with owners the most likely to bring claim and other third parties the least likely. The extent of the liability exposure is defined by the interaction of 1) the law, 2) the scope of services, and 3) the contract between the owner and the professional. So, for example, the statute of limitations and statute of repose affect the li- ability exposure, as do contractual conditions such as the standard of care clause, the indemnity clause, and the limitation of liability clause. The Conceptual Risk Financing or Insurance Treatment Options Available Include: • Reliance on Indemnity Without Insurance. In some cases, owners will rely on the indemnity provision in the contract to make them whole for breaches of professional duty and assume that the professional has the financial means to back up the indemnity. • Reliance on So-Called “Practice Policy.” Ar- chitects and engineers and related consultants will carry professional liability for their profes- sional activities. These policies, which typically are renewed annually, are referred to as “practice policies.” These professionals will usually carry some modest limit of coverage, depending on in- surance market conditions, owner requirements, and the extent and nature of their practice. Such policies are in place for 1 year to cover claims made within the policy year arising from the pro- fessional practice and all its client engagements (these are so-called “claims made” policies). • Purchasing a Project-Specific Errors and Omissions Program. On some larger and more complicated projects, owners will require higher limits dedicated to the specific project. These poli- cies tend to cover the entire design team, includ- ing all subconsultants. The coverage is customized to the project and may run up to 10 years. The premiums for such programs are high. Typically, these “project policies” are sometimes used on public projects greater than $250 million in con- struction cost or where there are high hazard de- sign challenges or other considerations. • Arranging an Owner’s Professional Liability Protection Program. Certain insurance companies, reacting to market pressures on “project policy” approaches, have developed a first-party alterna- tive for owners. The common brand name for such coverage is “Owner’s Protective Professional In- surance.” It provides indemnity to the owner over the professional’s “practice” policy. The economics of such coverage usually restrict its use to larger and more complicated projects. The Nature of Professional Liability Insurance, Owner Understanding, and Expectations One important consideration for owners is the application and efficacy of the required insurance. That a designer or design-builder secures the re- quired professional liability coverage does not guarantee that coverage applies whenever the owner thinks there has been an error or omission. A fundamental understanding of the coverage and how it works should frame an owner’s expecta- tions appropriately. The key elements are: • Design professional (errors and omissions) li- ability coverage is negligence-based. A successful claim must establish 1) a duty of care owed to the claimant,87 2) a breach of that duty by the insured party, 3) injury or damage as the proximate result of the breach, and 4) damages that are allowable under the law. Professional liability coverage is clearly not a guarantee or warranty of a project being successfully completed on time and on budget, and providing the expected value. • The coverage trigger is “claims made.” This requires that the claim of loss be made while the insurance policy is in force. As a result, the con- tracted professionals should carry coverage con- tinuously well after completion of the project. • The limits on such policies are annual aggre- gates for all defense and damages resulting from all claims made during the policy period. The lim- its are shared among all claimants until ex- hausted. As a result, the limits are often charac- terized as a “wasting asset” since the defense and damages costs erode the policy limits as they are incurred. Further, project owners are not usually made aware when the limits have been impaired or exhausted. This is of particular concern with respect to practice policies since those are subject to claims from the design professional’s entire book of business. • The coverage is subject to all the terms and conditions of the insurance contract, which is out- side the control of the owner. These include the exclusions (such as warranties or guaranties) and claim reporting requirements. 87 A brief discussion of standard of care is contained in § II.E.1 of this digest.

31 3. Pollution or Environmental Impairment In this section, we are concerned with two somewhat distinct issues: 1) projects involving remediation of existing known pollutants or con- taminants from land or buildings, and 2) expo- sures that arise from the release or escape of pol- lutants or contaminants at or from a construction project. In the second instance, the pollution conditions could result from project activities that cause a sudden escape of existing pollutants, a discharge of chemicals that are brought onto the site by the contractor or subcontractor in connection with its work, or the escape of pollutants caused by an ac- cident involving a vehicle transporting contami- nants from the project site. Generally speaking, there is very limited coverage in an agency’s in- surance or a contractor’s insurance for such losses, which would include bodily injury sus- tained by third parties at or on the construction site, off-site bodily injury or property damage, and on-site or off-site cleanup costs. 4. Remediation Projects Typical options for insuring loss arising out of remediation projects include: • Owner-Procured Coverage. In this case, the owner/agency would purchase coverage for pollu- tion liability losses arising from known conditions at or from the site. This includes purchase of “remediation cap” coverage for cleanup of existing conditions under which the owner/agency is in- sured in the event the costs for remediating known site conditions exceed a specified thresh- old. Such coverage can be very expensive and involve a very large self-insured retention and/or co-insurance or participation provision. • Contractor-Provided Coverage on Site-/ Project-Specific Basis. In this case, the contractor procures the insurance to protect itself from liabil- ity for pollution loss from its activities at the loca- tion at which remediation activities are taking place. For example, on asbestos or lead abatement work, the owner/agency would look to the contrac- tor to provide insurance at sufficient limits. Such coverage is generally available in the commercial insurance marketplace, and virtually all contrac- tors engaged in such activities carry appropriate limits of protection. 5. New Construction/Renovation Projects Typical options for insuring pollution liability loss arising out of projects involving new construc- tion and/or renovation include: • Contractor-Provided Coverage on Site-/ Project-Specific Basis. For this work, the contrac- tor procures the insurance to protect itself and, if contractually required, the owner/agency for pol- lution loss from its activities at a specific project location. A contractor could be required to provide evidence of contractor’s pollution liability cover- age for its work on a specified project at limits dedicated to the project. This would cover all op- erations at or from the site but could exclude loss arising out of preexisting conditions, if known to the owner/contractor, and any off-site work of the contractor. • Contractor-Provided Coverage for All Con- tractor Work. This is similar in scope to the site-/project-specific basis, but would cover all of the contractor’s work for the transit agency. In deciding among the various alternatives, the transit agencies should weigh the exposure to fi- nancial loss from sudden accidental or gradual release of pollutants from a project site and the costs and benefits each approach provides. Agen- cies should consider the following factors:

32 • As with the exposures to other third-party li- ability losses, the most appropriate treatment of the pollution or environmental impairment risk is to transfer it to the contracting parties (abate- ment contractor, general contractor, etc.) that con- trol the risk through appropriate indemnity clauses in the agreements. • Limits depend on the liability exposure re- lated to the project. As stated above, the majority of hazardous substance abatement contractors carry liability insurance at limits commercially available in the insurance marketplace. Many general contractors also carry contractor’s pollu- tion liability insurance at limits of $1 million to $5 million depending on their tolerance for the cost of this insurance and their ability to pass the charges for the coverage back to their client own- ers. Many of the contractors’ pollution liability policy forms automatically include the contractor’s client owners as insureds. • While some of the contractors’ pollution li- ability forms are written on an “occurrence basis,” it is probable that owner-procured insurance and insurance issued to abatement contractors apply on a “claims made” basis. • If the owner/agency will be purchasing the insurance for the project, care must be taken in making sure that the policy provides appropriate protection for all of the intended exposures and losses, as pollution liability policies vary from in- surer to insurer, unlike workers’ compensation, automobile liability, or general liability insurance. • To the extent the risk involves transporting significant concentrations of hazardous sub- stances off site for disposal or treatment, the con- tractor or transporter should provide evidence of coverage for pollution liability arising out of the transportation and disposal of such substances. B. CIPs: A Detailed Review 1. CIP Definition and Description What Is an OCIP?—A Working Definition.88 For purposes of this digest, we have defined an OCIP as a consolidated insurance program, using mas- ter insurance policies and supported by common and consistently applied services, protecting a project owner, construction manager, contractors, and other parties against workers’ compensation, general liability, and excess or umbrella liability claims. In addition to these three coverages, OCIPs may provide pollution or environmental liability, marine liability, or aviation liability cov- erage, although it is our experience that such in- stances are rare. OCIPs do not typically provide automobile liability protection. In some cases, OCIPs may be characterized as including other coverages, such as builder’s risk 88 The authors consulted a wide range of materials in the literature treating OCIPs and CCIPs, including GARY BIRD, THE WRAP-UP GUIDE (International Risk Management Institute, 1990, 1993, 1995, 2000); DAVID L. GRENIER, OWNER CONTROLLED INSURANCE PROGRAMS, PART 1 (Construction Management Finance Association Building Profits, Sept./Oct. 2000). See http://www. smacna.org/pdf/management/OwnerControlled InsuranceProgramsPart1.pdf; DAVID L. GRENIER, OWNER CONTROLLED INSURANCE PROGRAMS, PART 2 (CFMA Building Profits, Jan./Feb. 2001); WRAP- UP/OCIP IN CONSTRUCTION RISK MANAGEMENT, Vol. II, ch. IX (International Risk Management Institute, 2005); FEDERAL HIGHWAY ADMINISTRATION, GUIDE TO FHWA FUNDED WRAP-UP PROJECTS (2003), available at https://www.fhwa.dot.gov/programadmin/contracts/ 052303.cfm; CLIFF J. SCHEXNADER & SANDRA L. WEBER, OWNER CONTROLLED INSURANCE PROGRAMS (National Cooperative Highway Research Program, Synthesis No. 308, 2002). See http://onlinepubs.trb.org/onlinepubs/ nchrp/nchrp_syn_308.pdf. U.S. GENERAL ACCOUNTING OFFICE, TRANSPORTATION INFRASTRUCTURE ADVANTAGES AND DISADVANTAGES OF WRAP-UP INSURANCE FOR LARGE CONSTRUCTION PROJECTS (1999), http://www.gao.gov/ archive/1999/rc99155.pdf. The FTA Web site addresses some FAQs on wrap-up insurance. See http://www.fta. dot.gov/13057_6245.html. FTA also provides guidance in its Best Practices Procurement Manual in § 6.6. See http://www.fta.dot.gov/funding/thirdpartyprocurement/ bppm/grants_financing_6189.html#BM6_6. FHWA provides more comprehensive guidance at its Web site. See http://www.fhwa.dot.gov/programadmin/contracts/ wrap.cfm, http://www.fhwa.dot.gov/programadmin/ contracts/wrap02.cfm, and http://www.gao.gov/archive/ 1999/rc99155.pdf. See also LYNDON B. LITTLE, OCIP AND PROFESSIONAL LIABILITY: WHERE THE POLICY HOLDER IS NOT THE INSURED, Carrington and Coleman (2010), available at http://www.ccsb.com/pdf/Publications/ Insurance/OCIP_and_Prof_Liability.pdf.

33 (property under construction) or design profes- sional’s errors and omissions, but strictly speak- ing, they do not.89 While these policies may be pro- cured through the same process and insured by the same insurer or brokered by the same broker, they are typically separate transactions and not part of a single rating plan. OCIPs do not include any form of surety, such as payment and performance bonds. In some cases, the broker administrator may use the lev- erage of the OCIP to set up a favorable bonding support program, particularly for DBE firms, but the rating plan and bond placement are separate from the OCIP. One other typical characteristic of an OCIP is that the ultimate cost of the OCIP is determined by a combined rating plan. This plan can some- times be considered “guaranteed cost,” where the ultimate cost is subject only to changes in expo- sure, usually measured by payroll. However, most plans are “loss sensitive” where the ultimate cost is a function of the project’s loss experience. The ultimate cost will not be known until all claims are closed or the insurer “commutes” or termi- nates the rating plan. The timing horizon and du- ration of an OCIP, as well as the resulting uncer- tainty about the ultimate cost, contrast with the traditional contractor-provided model. The Evolution of OCIPs. “Wrap-ups” have been around for 50 or so years. The first OCIPs in- volved project owners procuring consolidated cov- erages for a single project at a single site involv- ing a single prime contractor. These OCIPs dominated the field until the late 1980s, when several variations appeared. Contractors came to appreciate the potential for increasing their own profits by assuming the responsibility (and savings) of consolidated pro- grams. These CCIPs made a contractor’s pricing more competitive and/or created an additional profit center. As the number of brokers and insurers inter- ested in OCIP programs increased and owner so- phistication increased, OCIPs were designed to accommodate multiple projects and multiple sites, sometimes over a long period of time. These pro- 89 See OFFICE OF THE INSPECTOR GENERAL, COMMONWEALTH OF MASSACHUSETTS, A REVIEW OF BIG DIG PROFESSIONAL LIABILITY INSURANCE COVERAGE (June 2005), in which the authors erroneously refer to the professional liability coverage as part of the OCIP; see http://archives.lib.state.ma.us/bitstream/handle/ 2452/35331/ocm61524772.pdf?sequence=1. grams became known as “rolling wrap-ups” and included ongoing maintenance programs, long- term capital improvement plans, and interde- partmental construction. Currently, programs involving multiple own- ers, such as through inter-local insurance trusts or municipal pools or joint purchasing authorities, are being explored. These programs would cover many sites, projects, and contractors. 2. Advantages: Three Areas of Control and the Question of “Savings” There are three areas of improvement a well- designed OCIP can deliver to the transit agency. All three of these improvements may result in a reduction of cost or generate “savings”90 for the owner: • Improved insurance coverage and protection. • Enhanced contract and construction manage- ment. • Superior and targeted services, including claims handling and safety. The literature suggests that the primary goal of any OCIP is control and the protection and coor- dination that control brings. Most authors em- phasize that cost control or “savings,” if achieved, is a secondary concern. This, however, is a well- maintained fiction because few, if any, OCIPs pro- ceed in the public sector unless there is some fi- nancial justification for the effort. Examples of how these improvements are achieved include: 1. In the area of improved coverage, there are higher limits of coverage. This benefit is three- fold. First, it assures that adequate limits are available in the event of a catastrophe. Second, it provides economies91 in securing those limits by 90 The three areas of “savings” are proposed by advo- cates for OCIPs. We acknowledge that it is difficult to establish an exact savings amount, as there are a num- ber of assumptions involved in the financial analysis because a transit agency cannot do program compari- sons based on price on every project. 91 Liability coverage is typically written in layers and may have quota share participation in each of the lay- ers. The pricing per million of limiting upper layers is typically a fraction of the cost per million in the lower layers. In assembling a lower layer of excess or um- brella liability coverage, the total cost for a large aggre- gate limit will be lower than purchasing a similar amount of limits priced in the first layer if procured by each contractor from its insurers.

34 eliminating the requirement that individual con- tractors or subcontractors secure higher limits at redundant cost. Third, by eliminating the re- quirement that individual contractors or subcon- tractors provide their own limits at their cost, the public entity is more likely to achieve its DBE or regional contractor goals. The ability to secure reasonable limits of insurance will no longer be a barrier to the participation of small or minority firms. 2. An OCIP also creates an opportunity to place broader and consistent coverage for all contractors and subcontractors. For example, a single liability program may include pollution or marine liability coverage, which may not be available to individ- ual construction firms. Likewise, the leverage of a larger premium mass often results in fewer exclu- sions and more favorable policy language. 3. In the area of contract administration, all otherwise acceptable bids meet contractual re- quirements. Also, the design of the OCIP with a single liability program and single workers’ com- pensation program in place makes the verification of required insurance much easier. The project owner will not need to track many policies with differing terms and conditions, effective dates, limits, and cost bases. The continuity of carrier eliminates much of the confusion that comes with claim activity involving more than one construc- tion entity. Coverage uniformity and claim han- dling should result in reduced management costs. Also, under an OCIP, the owner can control much of the potential for litigation among contracting parties. The cost of cross litigation and the sub- stantial defense costs that accompany it are eliminated. This results in both savings and a re- duced need to monitor and manage the various cross suits. 4. As discussed above, the OCIP approach may support DBE or regional employer goals of the project owner by eliminating the ability to meet the insurance requirements as a determinant in selecting otherwise qualified firms. 5. In the area of service, there are potential benefits over traditional programs. Improved pro- ductivity may result from improved safety. Skilled workers remain on the job, or return to the job more quickly, and morale is improved. Further, the improved safety92 applies to all levels of con- 92 A transit agency could achieve similar improve- ments in safety programs through required contractor safety programs. However, the financial benefit of re- duced claims experience would likely not benefit the owner as it would in an OCIP. tracting parties, including smaller firms without formal programs in place. To a certain extent, an OCIP provides a transfer of management ability and technology to smaller businesses. Financial Advantages: Sources of Savings. An- other way to look at the financial advantages is to review the sources of savings. The cost savings result from three areas: • Economies of scale and market leverage from a larger purchase, reducing insurance costs. • Reduction of overhead or mark-up costs and duplication in contractor costs. • Reduction of loss costs through safety, claims management, and elimination of uninsured losses. Added to these sources of savings is the in- creased control the owner has over cash flow.93 Nonetheless, determining the realized savings will be very difficult because of the many factors influencing costs and cost estimates. Some of these will be estimates that cannot be established with complete certainty because of the variability of insurance programs and outcomes. Potential Disadvantages: The Right Resources Can Help. Experience and the literature suggest that there are some potential disadvantages to an OCIP. Among those identified are the following: 1. Under certain circumstances, an OCIP rat- ing plan can be more costly than traditional pro- grams where individual contractors supply re- quired limits. These cases usually involve cost plus programs with high maximum premiums. They may also involve a concurrent issue with loss control and/or claims-handling issues. In the current market, the number of insurers and bro- kers interested in OCIP business almost guaran- tees that an acceptable rating plan can be ob- tained. 2. Some suggest that contractor resistance to OCIP diminishes the pool of bidders, as certain 93 The net cash flow would include an offset for de- posits, escrowed loss funds, or other collateral that is sometimes required in an OCIP. Insurers’ collateral requirements have changed over time and are a func- tion of the rating plans in place for loss-sensitive pro- grams. At one extreme, insurers may rarely require 100 percent collateral deposited in an insurer-controlled fund. More typical is some agreed-upon escrow account with funds equal to several months of loss payments. Some insurers require additional security through gen- eral indemnities, letters of credit, or similar instru- ments.

35 large firms decline to quote because the insurance component of their bid contains additional profit, or their own insurance programs provide a known scope of broad coverage. Contractor experience and familiarity with OCIPs may lessen this resis- tance. In fact, the number of CCIPs is growing, as large contractors move to capture the same bene- fits (and revenues) that owners enjoy under an OCIP. However, in our experience, there is no ap- parent decrease in the number of qualified con- tractors interested in public construction projects where OCIPs are contemplated. On the other hand, contractors with established “rolling” CCIPs are inclined to prefer CCIPs to OCIPs since they benefit from the latter.94 3. In large transit projects where very high lim- its of liability, e.g., higher than $100 million, are required due to the risk assessment or contractual requirements, having an owner and contractors in the market seeking those limits simultaneously for both OCIP and CCIP approaches can cause capacity and market access problems with ad- verse results. Transit agencies should 1) deter- mine which approach will be used before brokers approach insurance companies for quotations, or 2) do price comparisons based on conceptual or estimated costs. 4. There is some concern that there will be a redundancy in cost, if not in coverage, as certain contractors are either unable or unwilling to iden- tify all appropriate credits in their insurance charges or eliminate duplicate coverage. While this is always a concern, most brokers providing OCIP management services have both the experi- ence and the systems to handle both concerns. While 100 percent capture of credits may not be realized, most of the coverage duplication can be avoided. Careful preparation of the bidding docu- ments and the coordination of an experienced OCIP administrator and the contract manager will help minimize duplicate costs. 94 The rise in the number of institutional rolling CCIPs, where large contractors have large limits of cov- erage in place with one or more insurance companies with long policy periods, creates some challenges for owners. Insurance company pricing for a continuing stream of large projects over time is likely to be better than for one-off projects, making CCIP business more attractive to them than OCIP business. Further, be- cause CCIP insurers have already committed limits or capacity to a contractor, insurance market capacity for OCIPs involving those contractors on certain projects may be reduced or nonexistent, making it impossible to secure both a CCIP quotation and an OCIP quotation on the same large project. 5. Some critics point to the duration of the close-out of the project as a disadvantage. Because of the time that it takes to close out all remaining claims after completion of a project and to make appropriate adjustments with the insurers, man- agement must devote administrative time to the wrap-up for a period of time after construction is completed. However, experienced administrators can assume this responsibility and relieve the public project owner of most of the attendant bur- den. 6. Other contractor concerns are that OCIP coverage is not as broad as the contractor’s own program and that disruption of a contractor’s own program leads to higher costs. Contractors have argued that an OCIP exposes them to more risk. In practice, a well-designed OCIP can mitigate the coverage risk. Project Candidates for OCIPs. Almost any sub- stantial construction project is a candidate for an OCIP. At a threshold of about $50 million in hard construction costs within a 3-year period, a transit agency owner could consider an OCIP, although the financial benefits are small at that level. Once a project exceeds $100 million in construction costs, the economics present an opportunity for savings. Other characteristics of a good OCIP pro- ject include: • Projects in which multiple construction man- agers, design-builders, or prime contractors are working at a single or contiguous site, also known as having a co-location exposure. • Multiple contractors involved, usually five or more contractors or subcontractors for the project. • A number of separate construction contracts. • Mixed project delivery methods (e.g., DB and design–bid–build). • Labor-intensive projects with “unburdened” construction payroll in excess of $20 million. • Complicated or “high risk” construction. • An environment where an owner can positively motivate contractor safety practices. • Management and owner commitment to safety, loss prevention, and claims management. Criteria for Success. The criteria for a success- ful OCIP are simple. Proper understanding and planning are key elements. Management com- mitment and responsibility are also critical. At- tention to detail, management, and oversight are also necessary. Finally, the transit agency must marshal appropriate resources from within and