Completed Operations Liability and Obligations Low Down
Workmanship is not immune to potential claims of property damage or bodily injury. All operations carry the risk that injury or damage may occur as a result of the work, which can lead to costly lawsuits. Most projects involve a complicated mix of contractors and subcontractors that contributes to each project. It can be tricky determining who is liable for this risk.
Completed operations coverage is typically provided as part of the contractor’s general liability policy, along with premises/ongoing operations coverage and limited contractual liability coverage. Completed operations liability insurance provides coverage for an insured contractor against third-party claims for bodily injury and property damage caused by the contractor’s completed operation or work. It’s included within the “products/completed operations hazard.” A contractor’s completed operations coverage takes effect when the contractor’s work or the project has been completed.
In insurance terms, “your work” is a broadly defined term that includes operations performed by the policyholder or on the policyholder’s behalf, including material, parts or equipment in connection with the operations. Operations or work performed on behalf of the policyholder is referring to the work done by a subcontractor which is considered the contractor’s work.
A contractor or other involved party could be held liable for defects in a subcontractor’s work years after it has been completed. As a result, most construction contracts require subcontractors to provide insurance coverage for claims resulting from their completed work for a finite period of time. This means that as a subcontractor, you can be held liable for claims of property damage or bodily injury resulting from a defect in your work.
Typical contracts also require an endorsement to the subcontractor’s general policy which includes:
- The subcontract's name
- the owner
- the architect
- the general contractor
- other third parties as "additional insured" parties are all entitled to coverage.
It is critical that contractors maintain completed operations coverage not only while performing the work, but also into the future. Failure to do so could lead to a breach-of-contract lawsuit brought by the contractor or other party.
Make sure that you know local regulations and adequately document proper performance. Know your company’s documentation practices relative to each subcontract; carefully keep records of all processes. Having the proper risk transfer mechanisms in place is crucial for every contractor. Be sure to review the insurance requirements in your contracts, and have a system in place to manage compliance. Because your business may be part of several contractual relationships at one time, it’s important to control the type and magnitude of the liabilities you assume including liabilities after the work is completed. Don’t wait until a completed-operations hazard claim occurs to “patch” gaps in coverage. You should work with your broker to understand your risks and exposures, and develop a proper risk transfer program for your company.
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