Exclusions for operations arising out of owner controlled insurance programs (OCIP) are increasingly common in commercial general liability insurance policies. The U.S. District Court for the Western District of North Carolina started this year by resolving a coverage dispute as to one of these exclusions, highlighting the risk in disclaiming a defense obligation based on the exclusion, particularly in estoppel states.
In Continental Cas. Co. v. Amerisure Ins. Co., a CGL policy issued by Amerisure to a contractor (CSS) excluded bodily injury arising out of operations included in a “controlled insurance program,” which the policy defined as “a construction, erection or demolition project for which the prime contractor/project manager or owner of the construction project has secured general liability insurance covering some or all of the contractor subcontractors involved in the project, otherwise referred to as an Owner Controlled Insurance.” The court explained that “Amerisure’s practice was to exclude from its premium calculations payroll for its named insured’s operations covered by an OCIP, resulting in lower premiums. In other words, the insured pays no premium to Amerisure for payroll on operations covered by an OCIP.”
BE&K, the general contractor, retained SteelFab, which retained CSS to erect structural steel in connection with the construction of a hospital in Charlotte, North Carolina. An employee of CSS was injured and sued BE&K and SteelFab, alleging that they failed to provide adequate safety protections and failed to require CSS to provide such protections. Amerisure admitted BE&K and SteelFab were additional insureds, but refused to defend based on the CIP exclusion because the owner implemented a rolling owner controlled insurance program (ROCIP) through which it obtained GL and workers’ compensation policies from Zurich. CSS did not enroll in the CIP or advise Amerisure that there was a CIP for the Charlotte hospital job, and as such, CSS’s premium was based on all of its operations.
The court explained that under North Carolina law, the duty to defend is determined by a comparison of the four corners of the complaint and the policy, an insurer will owe a duty to defend where the “complaint is silent regarding facts necessary to negate a duty to defend,” and an insurer cannot rely on extrinsic evidence to negate a duty to defend. Applying these rules, the court found Amerisure “must show at a minimum that the Miller complaint alleges that CSS’s operations were included in the CMHA ROCIP.”
The court held Amerisure owed a duty to defend because it could not meet this burden as the complaint did not even mention the CIP. The court also found that the exclusion would not apply where the named insured is not actually covered by the CIP, and would not apply to a claim against the additional insured. Because North Carolina is an estoppel state, Amerisure’s failure to defend barred it from relying on any defenses to indemnity.