Every contractor should carry general liability insurance and not just because most states require it, but because it provides a lot of coverages that will protect your business with things go wrong.
Most businesses are completely aware that general liability will cover them for bodily injury and property damage claims from a third party.
In fact, and even more importantly, your insurer will have a duty to defend you whenever a legal action is filed against your business.
There is another coverage, however, that is typically built into your general liability policy called products completed operations coverage that benefits almost every contractor out there.
How can Products Completed Operations coverage Help Me?
Most standard general liability policies include products and completed operations as part of the core list of coverages. The completed operations liability exposure exists with most contractors because they typically install something on just about every project.
Here’s a typical example:
ABC Contractors was doing a remodel on an old two-story home and part of the remodel had to do with building two unusual stairways. One stairway was from the bottom floor to the second floor and the other was from the second floor to a finished attic.
These were not typical stairways and a lot of mathematical measurements were required to make certain the stairways would pass the county’s inspection; which they did.
However, about three months after the home remodel was completed, the contractor got a call from his customer’s attorney. The attorney advised that his client (the contractor’s customer) was using the stairway from the 2nd floor to the attic when one of the stairs broke loose from the stringer causing him to fall through the stairway and breaking one of his legs.
An inspection of the stairway revealed that the stair which had broken loose from the stringer was not sufficiently attached to the stringer because the screws that were used were not long enough or big enough to support the weight of the homeowner.
In this case, the contractor’s general liability coverage paid the medical expenses for the customer and the contractor agreed to check every step on both stairways.
Are there any Limitations to products-completed operations Coverage?
Certainly, in any legal contract (all insurance policies are legal contracts) the devil is in the details which makes it critical that you know the limitations of your coverage.
Claims Made versus Occurrence Coverage
Unlike a Professional Liability policy where coverage is provided on a claims-made basis, your general liability policy covers claims that happen during the policy period only.
For example, when you purchase professional liability insurance, any possible claims that were not filed before the inception date of your policy will be covered by the new policy. The general liability policy, however, will only respond to claims that happened and were filed during the term of the policy.
Uncompleted versus Completed
Products and completed operations coverage will only respond to claims that happened after a project was completed.
This is particularly important for contractors who build multi-unit residential or office projects. For example, let’s say that you were building a 20 unit apartment building. Any tenants that are allowed to move into a unit that is not completed would not be covered under your products and completed operations coverage.
You could, however, allow tenants to move into the completed units while you’re finishing the remaining units and your coverage would apply in the completed units.
Your Coverage is for Damage or Injuries – Not Repairs or Replacement
Your products and completed operation coverage will respond to injuries and damage that are a result of your operations but not the cost to repair or replace the materials need to fix the damaged product.
For example, in the ABC Contractors scenario used above, the contractor’s GL policy responded to the customer’s injury expenses, but the cost for repairing the stairway would be an out-of-pocket expense for the contractor.
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What about Coverage Limits for Products and Completed Operations?
Your general liability will have a per-occurrence limit for completed operations claims which represents the most amount of money the company will pay for a single claim.
Your policy will also have an aggregate limit which represents the most your policy will pay during the policy term.
Criteria that must be Met to File a Claim
For a claim to be covered under your products and completed operations coverages the following criteria apply:
- The claim must be the result of bodily injury or property damage to a third-party. If there’s no injury or property damage, there is no legitimate claim.
- The bodily injury and/or property damage must be a result of your completed work.
- The injury or property damage must happen away from your place of business.
- The injury or property damage must take place after the project has been completed.
- The claim (event) must have happened during the term of your active policy.
If these criteria have not been made, there may still be covered under other coverages in your general liability policy.
For example, if an injury or property damage happened at your shop or place of business, your premises liability coverage would likely respond instead of your completed operations coverage.
When you think about it, products and completed operations coverage is a straightforward coverage included in your general liability policy and as such, every contractor should make certain that it’s included in the contractors’ general liability policy.
We recommend in all cases that you speak with an insurance professional at Fairbanks Insurance Brokers about your general liability coverage and other coverages that will mitigate your everyday risks being in the construction industry.
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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