Completed Operations Insurance: What it is, How it Works

Completed Operations Insurance

Investopedia / Eliana Rodgers

What Is Completed Operations Insurance?

Completed operations insurance covers a contractor's liability for property damage or injuries to a third party once contracted operations cease. Construction products and the manufacturing of consumer goods and medicines will usually carry completed operations insurance. General liability insurance most often includes completed operations insurance. Contractors and manufacturers may also purchase additional or separate policies in amounts that are more than the general liability limits for loss and injury incurred off the insured's property.

Completed Operations Insurance Explained

Buying completed operations insurance transfers the risks associated with a contractor's or manufacturer's finished product to a third party. Even though a contractor completes work, loss prevention, and commercial insurance coverage are essential to relieve him of liability expenses. 

Consider the following three examples of contractors' liabilities. Six months after a roofing contractor finishes work at a bank, melting snow enters through the roof and ruins multiple network servers. A railing that a metalworker installed collapses when a person leans on it and the person falls 10 feet and suffers severe back injuries. A recently installed overhead door closes on top of a car. All parties seek compensation from the contractors for sustained injuries and property damage. 

Importance of Completed Operations Insurance

A completed operations insurance policy helps contractors and manufacturers settle claims while maintaining the financial stability of their businesses. It can protect against breach of contract and negligence claims. The coverage ensures reasonable compensation for damages or injuries resulting from the contractor’s work or a manufacturer's product. This type of indemnity insurance may settle punitive damages assessed by a court. Completed operations insurance will not cover instances of a product recall.

How Completed Operations Insurance Works

The insurance company provides the contractor with legal defense and pays for any settlement or judgment resulting from accidents related to covered completed work. For example, the company pays for the restoration, repair, or replacement of property when the contractor performs the work incorrectly. The extent of coverage may address defects in the materials used to build the structure or a malfunction of the electrical or other internal system resulting in damage to the building or occupants of the building. Some policies cover the contractor’s failure to provide fair warning about how to properly maintain and manage the building and its systems.

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