Understanding Product-Completed Operations Coverage for Contractors

November 2018
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You know general liability insurance covers your business against third-party bodily injury and property damage claims. But you may not realize this essential coverage is also designed to protect you in the event of an injury or damage that occurs after the job is done and you’ve moved on to the next project.

Let’s take a look at the product-completed operations coverage within your GL policy.

What is Products and Completed Operations Liability?

Liability coverage for products liability and completed operations liability is included in most standard commercial general liability policies. For contractors, completed operations covers liability for property damage or injuries to a third-party after the job is done.

Here’s what that may look like.

A decking contractor completed construction on a custom redwood deck and pergola. A few months later, the contractor receives an unnerving call. The redwood deck collapsed and seriously injured his customer. It turns out, the contractor had failed to properly fasten the deck to the wall and the collapse - and injury - are a direct result.

In another instance, a garage door installer gets an angry phone call from a client. The garage door that he recently installed closed on top of his client’s brand new luxury car. The client is demanding the garage door installer pay for the damage.

In both of these examples, the operations completed coverage in a contractor general liability policy should cover third-party injuries or property damage that arise from these completed jobs.

But product and completed operations liability coverage does have some limitations.

Limits to Product and Completed Operations Coverage

Imagine you’re ready for your long-awaited retirement from finish carpentry. Over the past decades, you’ve installed countless cabinets, stair banisters, doors, trim, moldings, and more. You completed work on your last job – a residential remodel project – and happily hung up your tool belt.

Three months later that residential remodel job comes back to haunt you. A kitchen cabinet fell from the wall, injuring your client. It turns out you made one small mistake during the installation process, which led to the fall.

You call your insurance company. You canceled your general liability policy after retiring, but the policy had been in place when the cabinetry was installed. So you assume that you’re covered for this incident.

Unfortunately, you’re likely mistaken.

Products and completed operations coverage generally pays only if the bodily injury or property damage occurs during the policy period. Even though you were adequately covered when you did the work, the incident occurred after you’d canceled your policy.

To be protected against completed operations claims, your general liability policy must be in effect at the time that the third-party injury or property damage occurs.

Completed vs Uncompleted Work

Products and completed operations coverage only applies to work that has been finished. It’s not coverage for products that are still under construction. Let’s say you’re working on a multi-family project. You’ve completed work on half of the units, and a few tenants have already moved in as you continue construction on the rest. If something goes wrong, only the completed units that have been put to their intended use are covered under the completed operations portion of your general liability policy. The other units that are still under construction? Completed operations typically wouldn’t apply here.

Coverage for Resulting Damage, Not Repairs

The completed operations portion of a general liability policy is intended to pay for the damage that results from your work, but not for the cost to repair and replace the resulting work.

In the instance of the redwood deck, the completed operations coverage is designed to help pay for the bodily injuries sustained by the client when the deck collapsed. But it will typically not cover damage to your product - the deck - or the cost to repair/ replace it.

Completed Operations Coverage Limits

Completed operations claims are subject to both the “each occurrence” limit and the products-completed operations limit in your policy.

The products-operations completed aggregate limit – the most an insurer will pay for this specific bodily injury or property damage claim – is separate from the general aggregate limit. Completed operations claims do not typically go against the general aggregate limit, which is the most an insurer will pay for all bodily injury, property damage, personal, and advertising injury claims.

However, completed operations claims are subject to the “each occurrence” limit, which is the most an insurer will pay for one specific incident/ accident.

Why does this matter? Imagine you’ve got two pitchers of water on a table. One of these is the general aggregate limit for all general liability claims. The second pitcher is the completed operations aggregate limit.

Now imagine that you’ve got a very large, empty glass. This glass is the “each occurrence” limit.

To fill this empty glass, you can first pour water from the completed operations aggregate limit pitcher. Once this pitcher is empty, you can pick up the general aggregate limit pitcher to continue to fill the glass. But once that “each occurrence” glass is full, no more water can be poured in from either of the aggregate limit pitchers.

Is it Covered? Completed Operations Claims Checklist

Here are five criteria an incident must meet for a completed operations claims to be covered:

  1. The claim must be for third-party bodily injury or property damage. If there is no injury or damage, there is no claim.
  2. The injury/ damage must result from your product or completed work.
  3. The bodily injury or property damage must take place away from your premises, whether you rent or own your place of business.
  4. The incident must have occurred after your work was completed and/or put to its intended use.
  5. The incident must have occurred when your general liability policy was in effect.

A third-party bodily injury or property damage claim that doesn’t meet all of these criteria may still be covered under your general liability policy. For example, a third-party bodily injury at your place of business may be a premises liability claim rather than a completed operations claim.

But the incident must meet the completed operations criteria if it will be paid from the completed operations aggregate limit and not the general aggregate policy limit.

Completed operations coverage is a simple concept: coverage for damage arising from work that you’ve finished. But, diving deeper, you’ll find that this coverage is a bit more nuanced. The better you understand your general liability coverage, the better equipped you are to make decisions about your liability protection.

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