Sometimes called product and completed operations coverage, this coverage is part of a general liability insurance policy and protects your business from liability surrounding your products or business operations off your property once those operations have been completed or abandoned.
Products liability and completed operations insurance have long been included in standard occurrence and claims-made investment policies. For about the same amount of time, they have been misunderstood by everyone from insurance agents to clients to lawyers.
What is covered?
Product liability insurance covers you against claims made associated with a product you manufactured or sold.
Completed operations insurance coverage is more relevant for contractors and service providers. This protects you in the event that someone claims that work that you did caused bodily injury or property damage.
In order for a claim to be covered, it must satisfy a few criteria. Fundamentally, the claim must allege bodily injury or property damage. The property damage must be to property other than your own. Said property damage or injury also must be a result of your product or completed work. Finally, the damage or injury must have taken place away from the property you own or rent for your business. In the case of completed operations that took place on a site that you don’t own, the claim must have occurred after your work was completed, as indicated by the name of the policy.
Among the claims covered are those of negligence and breach of warranty. If your product, in failing to comply with the standards guaranteed in a contracted warranty, causes bodily injury or external property damage, the resultant claim will be covered by your products liability policy.
Also be sure to understand your policy thoroughly, as these claims are subject to the occurrence and aggregate limits of your policy.
What isn’t covered?
The main exclusions to this coverage are damage to your property or your work. If your product or your constructed work fails, but there is no outside damage caused, then the claim will be rejected by your insurance carrier. In the event that the issue causes damage to your product or work, as well as damage to other property, only the damage to the other property will be covered.
In addition, there is an exclusion for “impaired” property. This is property that is defective or unusable because it contains your defective product or work. For example, you lay the foundation of a building and other contractors build the rest of the building. Your foundation cracks and the building is unusable. Your insurance company will not pay the repairs, because the work is part of a larger whole.
Lastly, if you are forced to make a blanket recall of a faulty product, the costs of the recall will not be covered by your insurance carrier. (This could be covered by limited product withdrawal expense coverage.)
The buried lead…
Many people, even those who should know better, are unclear of the reality of completed operations coverage. The general impression of completed operations coverage is that a claim will be paid, so long as your policy was active when the project was completed.
This is NOT the case. A commercial general liability policy will only pay a claim if the injury or damage occurs during the policy period. The claim must also take place while the policy is still active. Once the policy is cancelled, you’re out of luck.
You can buy something called a “tail,” formally called a supplemental extended reporting period (SERP), but this only covers damage or injury that occurred during the policy period. It still doesn’t cover claims for damage after the policy period; it simply extends the time frame for the claim to be made.
What’s truly harsh is that someone who is no longer in business will have a lot of trouble continuing his insurance to protect against such claims. The cost of his policy will most likely go way up, despite his decreased exposure.