Completed Operations: A Contractor’s Guide to Coverage, Cost, & More

Who pays for damages caused by faulty work or materials? If a contractor’s work fails after a project is complete, completed operations insurance can help cover some of the expenses. This policy is sold as an extension to your general liability insurance policy and may be required by the state you work in, or the project owner. In this article, we’ll explain how completed operations coverage works, and how it protects contractors and subcontractors.

What is completed operations insurance?

Completed operations insurance covers property damage or injury caused by work that a contractor performed in the past. It covers the damages caused by faulty work, product failure, or other causes. It pays for repairs of damages to the surrounding property, as well as legal expenses incurred during a lawsuit. However, completed operations won’t cover the cost to replace the faulty work or product itself. 

When purchased to cover a product, rather than building work, it is typically called product-completed operations insurance.

In general terms, completed operations coverage protects the property surrounding a contractor’s trade or specific work product — but not the work they performed or the product they installed. For example, if a plumber has completed operations coverage, any damage around the plumbing will be covered, but repairing the pipes and fittings is the responsibility of the plumbing contractor.

Contractors often buy completed operations insurance because it protects them from costly repairs after they have finished a project and are no longer on site. Since many states have a 10-year limit on damages from a construction project, these policies provide coverage for a similar time period.

Project owners can also purchase this coverage as part of a wrap policy (OCIP) for a project.

What does completed operations cover?

Completed operations coverage is bundled with a contractor’s general liability policy. The general liability portion protects the contractor from damages incurred while the contractor is on-site or at their warehouse or office. Completed operations insurance covers liability from work that is already completed (i.e., not in progress). The coverage kicks in when:

• The contract has been completed
• All of the work has been completed
• The work has been put to its intended use

The work is considered finished when the contract is complete — repairs or maintenance generally don’t affect the completion date.  

The policy covers damages to property, bodily injury expenses, and legal fees caused by faulty work or installation of a faulty product. For general contractors, the policy covers the work of subcontractors, but does not cover your own work if it was the cause of the damages.

How long does coverage last?

In most cases, completed operations coverage lasts for a period of 10 years after the completion of a project.

Since the statute of repose for most states is 10 years, completed operations coverage protects contractors for the duration of their exposure. The statute of repose cuts off the right to make a claim or sue a contractor after a certain length of time. Contractors can purchase coverage for longer terms, but it may not be necessary unless required by the owner or if the state has a longer statute of repose.

Examples of completed operations claims

Deck collapse

A contractor builds a deck for a homeowner. Several months after the deck is complete, it collapses with the owner on it and he or she gets hurt. Completed operations coverage will pay for the homeowner’s medical costs. If the home’s foundation or siding was damaged when the deck collapsed, completed operations would pay for the repair. However, the contractor is responsible for paying for the replacement deck.

Plumbing failure

Several years after the completion of a convenience store, a plumbing fitting in the floor fails, causing flooding and water damage. Completed operations will pay for repairing the damages to the floor and any other work below the slab. The plumbing contractor is responsible for repairing the pipe and fittings that failed.

Electrical fire

A couple of years after the construction of an industrial manufacturing plant, an electrical fire destroys the plant and the equipment inside. The owner sues the electrical contractor for their losses, even though the contractor determined their work wasn’t at fault. Completed operations coverage provides legal defense of the claim, which is found to be not of merit. In this case, the contractor is not out any money.

Who needs completed operations insurance?

All contractors — including general contractors and subcontractors — can benefit from having completed operations insurance. Completed operations is generally part of a contractor’s general liability package, although it can be purchased separately. Many states require contractors to have this coverage in order to be licensed.

Subcontractors may not have to purchase completed operations insurance, but it is a good idea to have it anyway. It protects your company from having to pay damages to third parties if your work is faulty or a product you installed fails.

There are five primary reasons why contractors need completed operations coverage:

1. Protects company assets
2. Prevents bankruptcy or business failure in the event of costly damage
3. Provides evidence of financial strength that may assist in closing deals
4. Satisfies bank loan requirements
5. Protects the public by covering damage or injury to third parties

Coverage limits

Like any other insurance policy, completed operations has a limit to the amount of damages it will pay. There are two types of limits: 

• Occurrence limit
• Aggregate limit

The occurrence limit is the maximum amount of coverage for an individual claim, while the aggregate limit is the maximum for all claims in the policy period. For example, a policy may have an occurrence limit of $1 million and an aggregate limit of $2 million. It’s possible to increase the limits by purchasing a policy with a higher premium.

Often, contractors purchase the minimum required to keep their costs down. However, project owners may require higher limits to meet their needs, so it’s important to check the contract carefully.

In some cases, if a project is taking place in a particularly litigious state, contractors and owners will likely want higher limits. But insurance companies aren't going to want to offer them because they don't want to cover the risk forever. You may have to get another policy type to fill that bucket. Contractors can purchase umbrella insurance or excess liability policies to extend their coverage.

What it doesn't cover

Generally, a completed operations policy covers damage to property around the contractor’s work, but not the work itself. There are four damage types that are not included in completed operations coverage:

• Damage to the contractor’s products: Any damages to equipment or materials that you installed will not be covered by completed operations. However, if a product or equipment failure causes damage to other materials, the cost of repairing the other materials is covered.
• Damage to the contractor’s work: Completed operations does not pay for damage to the work you provided on a project. So, if the damage only occurred to your work, the completed operations coverage does not apply. However, if surrounding work is damaged, the policy will cover the repairs. As a reminder, subcontractors are covered under a general contractor’s policy.
• Damage to defective or impaired products: Damages to defective products or work are not covered. If the defective product or work is the only work damaged, completed operations will not cover it.
• Recall expenses: Costs associated with recalling defective products or materials are not covered by completed operations insurance. There may be other exclusions for a specific policy. Read these carefully so you know when the coverage will kick in.

How much does completed operations insurance cost?

The cost of completed operations insurance depends on a variety of factors. While product liability coverage for a small distributor may cost a few thousand dollars per year, completed operations coverage can cost tens of thousands of dollars for a large residential builder. 

Additionally, because completed operations policies are often bundled with a contractor’s general liability insurance, insurers rarely price a completed operations policy on its own.

Cost factors

To calculate the premiums for a general liability policy with completed operations coverage, the underwriter will look at a large number of risk factors, including (but not limited to):

• Revenue and financial health 
• Years in business
• Project location
• Claims history
• Statute of repose
• Type of construction
• Building materials used
• Economic conditions

Some types of construction projects are inherently riskier for insurers, so costs can vary based on the work the contractor performs. Completed operations for a commercial contractor will generally cost less than a comparable policy for residential construction because the likelihood of future claims is lower. Likewise, contractors who build with wood instead of steel are more likely to see higher premiums because of the higher risk of failure. 

The policy cost will also depend on things like self-insured retention, deductibles, and desired limits: A policy with a $10 million limit for completed operations will cost significantly more than one with a $1 million limit because the insurer has to carry the risk for an additional 10 years or so. 

Purchasing insurance is an excellent way to protect your contracting business from potential losses or damages. Be sure to speak with a licensed insurance representative to determine which policies are suited to your business needs. 

Written by