Recent OCIP Decision Reminds Contractors About the Importance of Contract Language

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In recent years, Owner Controlled Insurance Programs (“OCIP”) have become more prevalent in public and private construction projects.  An OCIP “is a class of ‘wrap-up’ insurance that provides coverage for many construction project participants under one program.”  Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 767 (Conn. 2013).  Such programs typically include commercial general liability insurance and worker’s compensation insurance.  In general, OCIPs reduce a project’s overall cost because the owner does not have to pay the multiple layers of duplicative administration associated with the general contractor and each subcontractor having its own insurance coverage.  The general understanding is that the project owner benefits from the savings but a recent Superior Decision reminds us that contractual duties and obligations are derived from the plain language of the contract and not what may reasonably inferred.

In Elevator Serv. Co. v. Reg’l Scaffolding & Hoisting Co., 2013 Conn. Super. LEXIS 687 (Conn. Super. Ct. Mar. 27, 2013), Elevator Service Co., Inc. (“Elevator Service”) and Regional Saffolding & Hosting, Inc. (“Regional Scaffolding”) entered into an agreement pertaining to a project known as the Royal Bank of Scotland (the “Project”).  The issue before the court was whether Elevator Service had to pass along to Regional Scaffolding a discount that it received through the subject project’s OCIP.  The court decision in favor of Elevator Service was based upon an exact reading of the contract language.

A court’s analysis of a contract is based upon the accepted rules of contract interpretation such as the Parol Evidence Rule.  The Parol Evidence Rule – despite its name – is not actually a rule of evidence but a rule of substantive law, which states that “when the parties have deliberately put their engagements into writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed, that the whole engagement of the parties, and the extent and manner of their understanding, was reduced to writing.”  TIE Communications, Inc. v. Kopp, 218 Conn. 281, 288 (Conn. 1991).  “A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity.  Similarly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party’s subjective perception of the terms.”  Tallmadge Bros. v. Iroquois Gas Transmission Sys., L.P., 252 Conn. 479, 498 (Conn. 2000).  It was within this framework that the court reviewed the contract between Elevator Service and Regional Scaffolding on a motion for summary judgment.

Regional Scaffolding argued that it was due a reduction in contract price because Elevator Service was able to reduce its costs once it was accepted into the Project’s OCIP.  Regional Service argued that the contract made Elevator Service’s “pricing contingent on [Elevator Service] paying for insurance at it standard limits.”  Elevator Serv. Co. v. Reg’l Scaffolding & Hoisting Co., supra.  The court, however, noticed that the subject agreement merely stated that Elevator Service’s “pricing is contingent upon acceptance of [Elevator Service’s] standard insurance limits.”  Id.

The obvious implication from the contract language about the pricing being contingent upon acceptance of Elevator Service’s standard insurance limits is that the price included the cost of insurance up to Elevator Service’s standard limits.  Therefore, when Elevator Service was accepted into the Project’s OCIP, it no longer had that cost and Regional Scaffolding thought it was entitled to a credit for same but the court went against it.  The court noted that the contract only required acceptance of Elevator Service’s “standard insurance limits and [did] not provide for a required price adjustment or pass along of received discounts.”  Id.

It is reasonably certain that Regional Scaffolding’s assessment of the situation was correct.  Elevator Service most likely had a significant cost savings as a result of the Project’s OCIP.  Moreover, had the court not decided the case upon summary judgment, Regional Scaffolding could have conducted discovery and conclusively proved that the expected savings did exist but the court felt that that issue was irrelevant.  Based upon a strict reading of the contract, it did not matter whether or not there was a savings because Elevator Service was under no obligation to pass that savings along as Regional Scaffolding had claimed.

Drafting and reviewing contract is an important service provided by construction attorneys.  If you need your contract language reviewed or if you are in need of having standard contract agreements drafted, please give me a call.

Scott Orenstein
(203) 640-8825