Does products-completed operations cover me for faulty work?
Most contractors and subcontractors invest a lot of time and money in building their business. In many states, licensing is required and generally part of the licensing requirements will require proof of general liability insurance and a surety bond.
While at the job site, most contractors and subcontractors are meticulous about the work being done, even if they might have little control over an employee’s or subcontractor’s performance.
So, what happens when things go bad because of faulty workmanship? What happens when a customer brings a lawsuit because your business failed to complete the job to your customer’s satisfaction?
Does your General Liability Insurance policy cover an action brought for faulty work?
Does Faulty Work Qualify as an Occurrence?
According to a typical CGL (commercial general liability) policy, there must be a certain kind of occurrence the results in property damage. In the CGL, there are always specific terms that clearly define an occurrence as an accident.
The terms include continuous exposure to conditions that result in property damage or bodily injury. Certainly, in order to qualify, the injuries or damages must occur during the policy period stated in the policy and the property damage or injuries cannot be intentional.
Additionally, several additional factors must be considered to confirm if the occurrence and property damage requirements have been met.
- Work and/or products is listed in the contract that the contractor must provide.
- The insurance policy definitions
- The alleged faulty workmanship and
- The reason or nature of the cause of the alleged faulty work.
According to the Mitchell Wiggins CPA firm, “These dispute conditions apply to defects in a structure sold or built by the contractor. They also apply to defects in a product that the contractor manufactures and sells independently.”
So then, the answer to the question is: faulty workmanship will only be covered by the CGL if the alleged “faulty work” is considered an occurrence under the policy that you or your company purchased.
What about the Products-Completed Operations Coverage in My CGL?
According to IRMI (International Risk Management Institute):
Products-Completed Operations is one of the hazards ordinarily insured by a general liability policy. It encompasses liability arising out of the insured’s products or business operations conducted away from the insured’s premises once those operations have been completed or abandoned.
In layman’s terms, this means that your contracting business could be sued for damages if a customer or other third party alleged that the work you completed was faulty and resulted and in bodily injury or property damage.
However, if the products you purchased on behalf of a customer and then installed at a job site were found to be defective and resulted in bodily injury or property damage, your customer could bring an action against the manufacturer rather than the contractor who installed the product.
Who Needs Products-Completed Operations Coverage the Most?
Contracting businesses that provide a service are at risk of completed operations claims because these types of claims are for workmanship done away from your business premises that might be considered faulty and result in property damage or bodily injury.
For example, let’s say you are a licensed and insured contractor that renovated a customer’s office. After your work was completed, a cabinet you installed behind the customer’s desk came off the wall and damaged the customer’s antique desk and the resulting damage to the wall.
The products-completed operations coverage in your general liability policy would help pay the costs to defend you and your business in the lawsuit.
Other contractors who would benefit from having the products-completed operations coverage in their CGL include:
And many, many more…
What will Products Completed-Completed Operations Not Cover?
Since this coverage contains various exclusions, some claims are typically denied by insurance companies:
- Damage to a Contractor’s Product – The products-completed operations coverage in your general liability policy only pays for damage to property other than your product.
- Damage to Your Work – The products-competed operations coverage in your policy will exclude paying for damage to your workmanship. Let’s say you build a wooden stairway that collapses while your customer is using it. The client may bring a suit for the cost of the stairway but since the stairway is the result of your workmanship, the insurance company would not pay the claim. But, if the customer sues for bodily injury or property damage that is a result of the fallen stairway, it will likely be covered.
- Damage to Faulty Products – Claims resulting from faulty products that you used at a job site are also excluded. However, your customer can bring an action against the manufacturer of the faulty product if it resulted in property damage or bodily injury. This faulty product exclusion would also eliminate coverage for a product recall. For this type of claim, a contractor would need product recall insurance.
Should I buy a Stand-Alone Products-Completed Operations Policy?
Unless you are a very large contractor, manufacturer, or are involved in a high-risk operation, your commercial general liability policy or BOP (business owner’s policy) will generally provide enough products-completed operations coverage.
Your insurance agent should ask the right questions before you purchase a policy to make certain that your coverage and limits are sufficient to protect your business in the industry you work in.
Where can I buy Commercial General Liability Insurance?
Fairbanks is staffed with experienced and reputable insurance professionals who understand all facets of the contracting industry and represent many of the highly-rated insurance companies that contractors rely on for risk mitigation. Contact us today and let us help you protect your business.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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