An article by Noelle McCall, CIC, CRM, CCIP, ACRA, CISR

What is Completed Operations Insurance and Why Do Contractors Need It?

As a contractor, your job doesn’t end when you finish a project. Even after the tools are packed up and the work is done, there’s still a chance that something could go wrong with the completed work. That’s where completed operations insurance comes in. This coverage is essential to protect your business and your financial future. Let’s break it down.

What Is Completed Operations Insurance?

Completed operations insurance is part of a commercial general liability policy. It covers damages and defense costs for bodily injury and property damage to others caused by your work after you’ve finished it and turned it over to the customer. For example:

• A contractor installs flooring, but a year later, the floor collapses because the wrong materials were used. If someone gets hurt, completed operations coverage helps cover the costs.

• An HVAC technician installs a system that later leaks and damages a customer’s property. Completed operations insurance can cover the repair costs.

• A plumbing company completes a project, but a pipe bursts a month later, causing water damage. Completed operations coverage can cover the water damage to property.

In short, it protects you from claims of bodily injury or property damage that happen after your work is done.

Products-completed Operations Hazard Defined

Here’s how the Insurance Services Office (ISO) defines the "products-completed operations hazard" in its CG 00 01 04 13 Commercial General Liability Coverage Form:

16. "Products-completed operations hazard":

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

b. Does not include "bodily injury" or "property damage" arising out of:
(1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the "loading or unloading" of that vehicle by any insured;
(2) The existence of tools, uninstalled equipment or abandoned or unused materials; or
(3) Products or operations for which the classification, listed in the Declarations or in a policy Schedule, states that products-completed operations are subject to the General Aggregate Limit.

Source: Insurance Services Office, Inc., Commercial General Liability Coverage Form CG 00 01 04 13

Why Is This Coverage Important?

Without completed operations insurance, you’re on the hook for these kinds of claims, which can cost thousands or even millions of dollars. Here are a few key reasons why contractors need this coverage:

1. Protect Your Financial Assets: If a claim arises, insurance pays for it—not you. This helps keep your finances safe.

2. Avoid Bankruptcy: Without proper coverage, a costly lawsuit could put you out of business.

3. Meet Contract Requirements: Many clients require proof of completed operations coverage before awarding contracts.

4. Avoid Breach of Contract: Failure to maintain required insurance can also lead to breach of contract.

5. Stay Compliant: Banks and other lenders may require this coverage as a condition for loans.

6. Show Professionalism: Having completed operations insurance demonstrates your financial strength and reliability to potential clients.

7. Protects the Public: Insurance can be used to protect the public by covering property damage or bodily injury to third parties.

How Does It Work?

Completed operations coverage is triggered when:

• The property damage or bodily injury is caused by an "occurrence". Under a standard CGL policy written on ISO coverage form CG 00 01 04 13, an "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions".

• The occurrence happens within the policy territory.

• The occurrence happens away from premises you own or rent.
• Coverage applies when your work has been completed as specified in the policy.

• The property damage or bodily injury takes place during the policy period.

Typical policies offer limits like $1 million per occurrence and $2 million aggregate, but higher limits are available. You can also purchase extra protection through umbrella or excess liability policies. 

What’s Not Covered by Completed Operations Insurance?

It’s just as important to know what this insurance doesn’t cover. Here are some common exclusions:

• Intentional Acts: If damage is caused intentionally by you or your employees, it won’t be covered.

• Faulty Workmanship: If your work is poor quality but doesn’t cause additional damage or injury, it’s not covered. (You might need a warranty or performance bond for this.)

• Injuries to Employees: If your employees get hurt on the job, that’s covered by workers' compensation insurance, not completed operations insurance.

Important Things to Know

1. Coverage Follows the Claim, Not the Work: The policy in place when the injury or damage occurs (not when the work was done) provides the coverage.

2. Don’t Cancel Your Policy Too Soon: If you retire or stop working, you still need coverage for claims that might arise later. Consider maintaining your commercial general liability policy or purchasing a special discontinued operations policy.

3. Statutes of Repose: Some states allow claims to be made years after a project is completed - sometimes 10 years or more. Check the laws in your state.

4. Tail Coverage Doesn’t Apply Here: Tail policies are used with claims-made policies to allow extra time to file claims. Tail coverage doesn't apply to occurrence-based policies. Tail coverage does not extend the policy period.

Real-Life Example

Imagine this scenario: A contractor built a home in 2022 but retired and cancelled their commercial general liability policy in 2023. In 2024, a floor in that home collapses, injuring the homeowner. Since the injury happened after the contractor cancelled their policy, there’s no insurance to cover the claim. The contractor is left to pay out of pocket - a financial disaster that could have been avoided with continued coverage.

Final Thoughts

Completed operations insurance isn’t just another expense - it’s a vital safety net for your business. It protects your hard work, reputation, and financial future long after the project is done. Don’t leave your business exposed. Make sure your commercial general liability policy includes completed operations coverage, and always plan for future claims, even if you’re nearing retirement or closing your business.

Remember, the best way to protect your business is to prepare for the unexpected. If you’re not sure about your coverage, talk to your insurance agent today.