Accidents can occur when you least expect them. Your business might spend years successfully selling and manufacturing high-quality children’s clothes, only to be sued because a customer’s child chokes on a button from a dress you sell. You could be consistently rated as the best contractor in your city, but face a lawsuit when your apprentice uses a shoddy technique to nail down flooring and your customer is injured as a result.

Few business owners relish the possibility of a lawsuit. Legal fees, large financial settlements, and a damaged reputation are just a few of the downsides of going to court. Luckily, insurance can protect you from the worst of these ordeals. If you have a general liability insurance policy, you are insured against lawsuits related to your products or completed operations through Products and Completed Operations Coverage.

What is Products and Completed Operations Coverage?

Products and Completed Operations Coverage provides financial protection in the face of lawsuits claiming bodily injury or property damage that come as a result of work that you have completed or a product you have manufactured, sold, or distributed. This coverage is typically included within commercial general liability insurance and helps protect businesses from liability once their work is done.

The “products” portion of Products and Completed Operations Coverage refers to any good or product that your business manufactured, sold, handled, distributed, or disposed of.

Examples of products that are of higher liability risk include:

• Automobiles or motor vehicles
• Chemical products, including insecticides
• Children’s and baby products, including toys, clothing, and utensils
• Health and beauty products
• Fitness equipment
• Furniture
• Pharmaceuticals
• Sports equipment

Examples:

• Bodily injury: Your business manufactures toys for children, and one of your latest gadgets, a plastic rocket ship with electric blast-off capabilities, is reported to have caused third-degree burns to an 11-year-old boy in Oklahoma. His father sues your company for damages. You receive coverage for the bodily injury lawsuit because you have Products and Completed Operations Coverage.
• Property damage: Your company designs and manufactures windshield wipers for high-end sports cars. Customers are complaining that one particular model of wiper blade you sell has been causing scratches on car windshields. Eventually, you are sued by a few customers who claim property damage to their cars.

The “completed operations” portion of Products and Completed Operations Coverage refers to your work or service that has been completed. Operations that are still in progress, i.e. still under construction, are not included in Products and Completed Operations Coverage.

Examples:

• Bodily injury: Your company installs residential solar panel systems, and you’ve recently been hired to outfit a home with a 10kW system. A month after the system has been installed, your customer is injured when a solar panel comes loose and falls on him when he is gardening in his yard. He sues your company for his injuries.
• Property damage: Your business builds and repairs residential decks, and you recently completed revamping a client’s backyard deck. A week after your team has completed the project, a support post gives way and the deck collapses, damaging the hot tub and barbecue grill that sat on the deck. The customer sues you for property damage.

Do I need Products and Completed Operations Coverage?

Anyone who sells a product or performs a work or service that has the potential to cause property damage or bodily injury should have Products and Completed Operations Coverage as part of a general liability policy.

Some examples of small businesses that may want to obtain Products and Completed Operations Coverage include:

• Construction companies – often complete work that directly affects a client’s property and has the potential to cause damage or bodily injury, e.g., carpenters, plumbers, roofers, etc.
• Food establishments – serve food products that may sicken customers, e.g., restaurants, cafes, food distributors
• Home maintenance – provide services to maintain residential or commercial properties and can potentially damage property, e.g., cleaning services, landscapers, etc.
• Manufacturers – create products that may malfunction or be defective and cause harm to a customer, e.g., toy manufacturer, furniture maker, textile producer, etc.
• Retail stores – sell products that could potentially harm consumers, e.g., toy stores, sports equipment stores, appliance stores, etc.

For those businesses that may be involved in developing higher risk products, like pharmaceuticals or insecticides, it may be wise or necessary to obtain separate product liability insurance coverage, which would typically include a much higher limit of insurance.

What does Products and Completed Operations Coverage cover?

Products and Completed Operations Coverage covers damages as a result of property damage or bodily injury that are brought on by your products or completed operations.

It’s important to note that Products and Completed Operations Coverage is third-party insurance, meaning it covers claims brought on by third parties. This would not include anyone who is part of your business or who is an employee. Third parties could include customers, vendors, or clients.

What are the key exclusions to Products and Completed Operations Coverage?

The following cases are commonly excluded from Products and Completed Operations Coverage:

Products or operations that do not result in bodily injury or property damage.

You will not receive coverage if someone sues you because a product or service you sold them was defective but did not result in any third-party injury or damage.

Example:

• You own a furniture store, and a customer sues you because a chair you sold them broke after one use. Products and Completed Operations Coverage would not provide coverage as there was no bodily injury or property damage claimed by the customer. Another chair you sold to a different customer ended up breaking as well, causing the customer to sprain her ankle. Products and Completed Operations Coverage would apply in this scenario as there is bodily injury.

Work that has not yet been completed.

Any bodily injury or property damage that occurs while you are still in the process of completing your work is not covered by Products and Completed Operations Coverage.

Example:

• Your HVAC company is hired to install a new air conditioning system at a local office building. While your team is working on installing new ducting, an employee drops a large vent at ceiling height, damaging the office flooring. Products and Completed Operations Coverage would not apply because the work had not been completed. However, this damage would be covered by the property damage portion of your CGL policy.

Damage to your own work or product.

Any damage to your own product or work is not covered by Products and Completed Operations Coverage. Your insurer will only cover you for lawsuits related to damage that your work or product inflicted on a third party.

Example:

• Your company recently installed a hardwood deck at a residential property. Five months after installation, the deck collapses due to a faulty support beam. Products and Completed Operations Coverage would not apply because there was no bodily injury or property damage, aside from the damage to the deck itself.

Damage done to “impaired” property.

If your product is used as a component in another item, and removing your product from the item would restore its functionality, then the damage is not covered.

Example:

• You manufacture electronic circuit boards for smart doorbells. A group of customers sues your firm because your circuit boards have proven faulty, and their doorbells do not work with your defective boards. The customers claim property damage because the doorbells are not functional. However, only your circuit board is defective and the doorbells themselves would work if the boards were replaced. Moreover, no part of the doorbell was damaged due to your defective circuit boards. In this scenario, Products and Completed Operations Coverage would not apply.

Damage that occurs on your business premises.

Accidents that happen on your business property are not eligible for this type of coverage. The damage or injury must occur off your premises to receive Products and Completed Operations Coverage. However, the bodily injury and property damage portion of your CGL policy would typically cover damage that occurs on your business premises.

Product recalls.

Products and Completed Operations Coverage does not cover any of the costs of recalling your product, i.e., removing your product from the market and rehabilitating your company’s reputation. Product recall insurance can help you in this scenario.

Damage done intentionally.

Any damage or injury that is inflicted that was expected or intended is not covered by Products and Completed Operations Coverage.

Gaps in Coverage

Products and Completed Operations Coverage only applies if you have an active CGL policy, but a lawsuit can occur at any time. You may complete your work with a client without any problems, only to have a customer file a suit against you years later. While you may have had an active policy when you completed the work, you will not receive any coverage unless you are insured at the time of the bodily injury or property damage.

For this reason, it is critical to maintain continuous coverage, even if you work in a seasonal business. Many former business owners even opt to continue paying for this insurance after their company has closed or purchase discontinued products and operations insurance, knowing they may still be held liable years later. However, it is important to note that many states employ statutes of limitations for personal injury and property damage lawsuits, typically ranging two to five years.

Example:

• Your company manufactures specialty cookware. Three years ago, you released a new line of non-stick pots and pans. At the time that you manufactured the collection, you had a general liability insurance policy in place with Products and Completed Operations Coverage. However, you recently wound down the business and cancelled your coverage. A customer now files a lawsuit against you, claiming that she got sick from using your pans. Though you had Products and Completed Operations Coverage when you sold the cookware, you didn’t have it at the time that the customer fell ill and filed the suit and will need to address the suit without the backing of an insurer.

Final Word

Products and Completed Operations Coverage is an essential component of general liability insurance. It’s meant to cover the costs of a personal injury or property damage lawsuit caused by your products or completed works. Most manufacturers and retailers will benefit from Products and Completed Operations Coverage, as injury or damage can occur even after your work is done. While it is nearly impossible to guarantee the safety of all your products or services indefinitely, it is feasible and prudent to ensure that your business is protected from third-party lawsuits with general liability insurance.