What is products and completed operations coverage? In a commercial general liability policy this coverage protects the insured in the event of claims caused by products they have made, sol or distributed & also contractor's liability once contracted operations cease.
What Is Products And Completed Operations Coverage?
When you are looking to purchase a general liability policy for a start-up or new business, you may need to cover products or completed operations. Your business could be sued if someone is hurt by a product you manufacture or sell, or by contracting work you have completed.
For example, someone could file a sue you for a defective product you made (like a defective tire), causing bodily injury or property damage.
This article will explain just what is products and completed operations coverage, and how claims arising from your products or completed work are covered under a general liability policy.
Understanding Completed Operations Insurance
Buying completed operations insurance transfers the risks associated with a contractor's or manufacturer's finished product to a third party (the insurance company). Even though a contractor completes work, - loss prevention and commercial insurance coverage are essential to relieve him of liability expenses for faulty work or a defective product.
What is products and completed operations coverage? Simply put if you have a product ( tangible item that is being traded) or a completed operation, you need this coverage.
Claims that arise out of your products or completed operations are covered by a general liability policy unless they are specifically excluded by an endorsement. it is important to note that general liability does not cover every claim or lawsuit regarding your products or completed work. The following three criteria must be usually be satisfied before your policy will pay a claim:
- The claim must allege third party bodily injury or property damage - the claim will be denied no bodily injury or property damage has occurred.
- The claimant must prove that the bodily injury or property damage arose out of your products or completed work - there must be a clear connection between your defective product or work and the bodily injury or property damage.
- The bodily injury or property damage must occur away from your business premises and must happen after the product is no longer in your physical possession or after your work has been completed.
The Importance Of Products And Completed Operations Insurance
What is products and completed operations coverage? This policy helps contractors and manufacturers settle claims while maintaining the financial stability of their businesses. It can safeguard against a breach of contract and negligence claims. The coverage guarantees reasonable compensation for damages or injuries resulting from the contractor's work or a manufacturer's product. This type of indemnity insurance may resolve punitive damages assessed by a court.
Do note that products and completed operations does not cover instances of a product recall. So if you are forced to withdraw a faulty product from the market, your policy will not cover the costs of the recall.
Here are some examples of products & completed operations coverage:
- A company manufactures children's swings sets. A child's parents claim that their daughter was swinging when the chain broke and their child was thrown through the air. They allege that the defective swing caused her fall and sustain a broken broken hand and leg.
- A contractor washes a sidewalk. After leaving the worksite, a person walks along the wet sidewalk and slips then falls. Since the contractor has gone from the site, the claim would be filed under the completed operations liability coverage.
- A contractor cleans a wooden deck on a boat. 2 months after the deck was cleaned, the customer holds a party and the deck collapses, injuring guests on the deck. An investigation then determined that due to something the contractor did when he washed the deck, it caused a problem with the deck's structural integrity. Even if the work completed was unlikely to cause the accident, the injured people from the party will likely sue everyone involved, including the contractor.
How Does Products & Completed Operations Insurance Work?
The insurance company offers the contractor or manufacturer legal defense fees and pays for any settlement or judgment arising from accidents associated with the covered completed work. For example, the company pays for the restoration, overhaul, or replacement of an old apartment when the contractor performs the work erroneously. The degree of coverage may address defects in the supplies used to restore the structure or a malfunction of the electrical wiring or other internal system resulting in damage to the building or occupants of the building.
What is products and completed operations coverage? Some policies cover the contractor's failure to provide fair warning about how to properly maintain and manage the building and its systems. In many cases, a company thinks that its errors and omissions or professional liability coverage are sufficient for his risk exposure. Products and completed operations will cover bodily injury and property damage whereas errors and omissions only cover a personal injury claim. Also, the products and completed operations coverage can come into play without a deductible.
Notable Policy Exclusions
If your product or completed work is faulty or is not what you agreed to deliver, your CGL policy will not cover the costs to do it over it. The following three exclusions make this crystal clear and are located in the exclusions section of your general liability policy under Coverage A:
Damage to Your Product - This exclusion "excludes property damage to your product arising out of it or any part of it." This exclusion is designed to bar coverage for damage to an insured's product arising out of a defect with that product. In other words the CGL policy does not cover defects arising out of your product that damage your product.
Damage To Your Work - This exclusion means that the CGL policy will not cover damages to a structure built by the insured contractor. So any damage to the structure resulting from alleged construction defects would not be covered. This exclusion typically contains an exception for work performed by subcontractors to protect contractors from claims stemming from defective work performed by subcontractors.
Damage To Impaired" Property - This exclusion is confusing. In simple language - impaired property is someone else's property that cannot be used because your work or your product, which has been incorporated into that property, is inadequate or defective.
Liability Policy Limits
Claims against your products or completed work are subject to both the occurrence and the products & completed operations aggregate limits in your general liability policy. The aggregate limit is the most your insurer will pay under your policy, in one policy term (usually a year), for damages or settlements arising from your products and or completed operations.
The declarations page of a general liability policy will list how much the policy will pay for claims on behalf of its insured, for each specific limit. Below is in example of commercial general liability policy's limits of insurance as listed on the declarations page:
What Is Products And Completed Operations Coverage? - The Bottom Line
We hope this article on what is products and completed operations coverage? has been informative. You definitely need this coverage and should not exclude it from your general liability of you manufacturer, import or white/private label any products as you will have liability for the life of that product.
Understanding The ISO Products/Completed Operations Liability Coverage Forms
When a person is injured because of your products or services, you don't have any control over the ultimate cost of that injury. The person injured may be a young child, a blue-collar worker, a surgeon or a homeless person. The cost of the injury may be comparatively minor or run into the millions of dollars, depending on the person and the extent of his or her injuries. Do you have sufficient assets to pay such a loss? And if you do, should they be used to do so? If not, the Insurance Services Office (ISO) Products/Completed Operations Liability Coverage Forms are designed to help you protect your assets.
Consult the policy for definitions and limitations. The information below does not represent contract terms. The policy is subject to company underwriting practices.
What Is Covered
The ISO Products/Completed Operations Liability Coverage Forms protect your assets by insuring your legal obligations due to damages that result from bodily injury or property damage arising from your products or completed operations. This coverage includes the costs related to lawsuits and other legal proceedings. The limits of insurance selected should be sufficient to handle serious injuries and the loss of earnings of the injured party. However, the coverage provided is subject to certain exclusions, conditions and definitions.
What Isn't Covered
Every insurance coverage form or policy has certain exclusions and limitations. This is because the coverages are either needed by only specific types of businesses or the risk or exposure to loss is not considered insurable. Some of the Products/Completed Operations Bodily Injury and Property Damage Liability Exclusions are:
- Expected or intended injury
- Contractual liability
- Liquor Liability
- Workers Compensation and similar laws
- Employers Liability
- Damage to certain types of property
- Damage to your product
- Damage to your work
- Damage to impaired property or property not physically injured
- Recall of products, work or impaired property
- Electronic data
Always review the coverage form carefully for other limitations and exclusion details.
Conditions are obligations you owe the insurance company as well as obligations the insurance company owes you when a loss occurs. The conditions in the ISO Products/Completed Operations Liability Coverage Forms are:
- Duties in the event of occurrence, claim or suit
- Legal action against us
- Other insurance
- Premium audit
- Separation of insureds
- Transfer of rights of recovery against others to us
- When we do not renew
The ISO Products/Completed Operations Liability Coverage Forms provide very broad coverage. Many endorsements are available to use with these coverage forms that broaden, limit or exclude coverage.
Further Reading On Commercial General Liability Insurance
- Commercial General Liability Coverage Form
- General Liability Insurance
- CGL Exclusions Explained
- Contractors General Liability Insurance
- Difference Between General Liability And Auto Liability Insurance
- Does General Liability Insurance Cover Subcontractors?
- General Liability Insurance Claims-Made vs Occurrence
- Product Liability Insurance
- Product Liability Insurance vs General Liability
- What Damages Are Covered By A CGL Policy?
- What Does Commercial General Liability Insurance Cover?
- What Does Personal And Advertising Injury Mean?
- What Is A Premises And Operations Insurance Policy?
- What Is Damage To Premises Rented To You?
- What Is Products And Completed Operations Coverage?
- What Is The Difference Between Per Occurrence And Aggregate Liability Limits?