Masonry Magazine October 1966 Page. 13
DIVISION IV: COMPLETED OPERATIONS AND PRODUCTS LIABILITY
Optional under the Comprehensive General Liability Policy form, this division covers the insured's legal liability for bodily injury or property damage arising out of: (1) completed or abandoned operations, if caused by an occurrence (as defined) away from premises owned by or rented to the insured, and (2) the insured's products, if caused by an occurrence away from the insured's premises and after physical possession of the product has been relinquished to others.
Because coverage for both hazards is included in this single division of the policy, the term "Products Liability" has come to mean insurance for completed operations as well. For contractors, this protection takes effect when the basic Operations-Premises Insurance terminates. Deciding exactly when that occurs has kept many a judge working late and conflicting opinions abound.
The new policy form, however, calls operations completed: (a) when all operations to be performed by or on behalf of the insured contractor under the contract have been completed, or (b) when all operations to be performed by or on behalf of the insured contractor at the job site have been completed, or (c) when the portion of the work out of which the bodily injury or property damage arises has been put to its intended use.
In general terms, then, completion of work rather than acceptance is usually the determining factor. It is important to note, too, that operations which may involve later service or maintenance work are completed insofar as coverage is concerned. This also applies to further repair or replacement work because of a defect or deficiency; if the work is otherwise completed, the policy calls the operation completed.
Fortunately, if both coverages, Operations-Premises (Division 1) and Completed Operations-Products (Division IV), are written by the same insurance company at identical limits of liability, the question of which policy applies becomes academic. One or the other will cover insured losses without gap or overlap.
Although listed as an optional coverage under the Comprehensive General Liability policy form, the protection provided by Division IV is no luxury. Anyone operating a business without Completed Operations coverage has every right to feel apprehensive about it; this is particularly true of contractors. The relatively high liability premium developed in certain contracting trades has tended to delay unanimous acceptance, but those premium rates are a sure measure of exposure to loss. In short, the coverage is urgently recommended.
A contractor buying this insurance for the first time today is automatically protected, in the absence of a specific exclusion to the contrary, for injury or damage occurring anytime thereafter during the policy period, regardless of the completion date or when the defect or faulty workmanship took place. The date of injury or damage is the important factor; it must fall within the policy period and coverage ceases at expiration unless renewed. The completion date may have some bearing on the extent of a contractor's legal liability for injury or damage, but not on the question of coverage.
Several limitations specifically applicable to this section are referred to in the list of "Policy Exclusions and Limitations." Rating basis, usually per $1,000 of gross receipts.
Example No. 1
A manufacturer of building materials sold and delivered his product to a contractor, learning some six months later that those materials proved to be defective after installation by the contractor. Not only did they have to be replaced, but they caused damage to property stored in the finished structure. The manufacturer's Products Liability Insurance, while excluding replacement of his own material (see discussion of exclusions), paid for damage to the stored property.
Example No. 2
Our young victim went with a friend to a new movie theater. As they sat down, both were struck on the head by ceiling tiles, work completed by a tile contractor 30 days previously. His insurance carrier settled the claims under a Completed Operators-Products Liability rider added just ten days before the accident.
Example No. 3
A plumbing contractor was charged with the expense of replacing part of the piping he installed, replastering of ceilings and walls as well as interior furnishings on several floors of a high rise apartment building, the damage being gradually noticed rather than happening all at one time. Because he was insured for Completed Operations on an "occurrence" rather than "caused by accident" basis, his insurance paid for replastering and interior damage. The cost of piping replacement was not insured (see exclusions).
Follow this article in next month's MASONRY.
THE AUTHOR
Walter T. Derk is Assistant Vice President of the Fred S. James & Company, national brokerage firm with headquarters in Chicago. He has over 19 years of experience in the casualty insurance field and is one of the leading national speakers on this subject. Mr. Derk has lectured architectural classes at the University of Illinois on the subject of contract specifications and is the author of many comprehensive articles on insurance.