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Completed Operations Liability and Obligations - September 2017
Even quality workmanship is not immune to potential claims of property damage
or bodily injury. All operations carry the risk that injury or damage may occur
as a result of the work, leading to costly lawsuits. Considering the
complicated mix of contractors and subcontractors that contributes to each
project, who is liable for this risk?
In insurance terms, “your work” as used in an insurance
policy is a broadly defined term that includes operations performed by the
policyholder or on the policyholder’s behalf, including material, parts or
equipment in connection with the operations. Operations or work performed on
behalf of the policyholder means work done by a subcontractor is considered the
contractor’s work. Therefore, faulty electrical work performed by an
electrician that causes a fire or other damage could be considered the
contractor’s liability, but would be covered under a standard commercial
general liability (CGL) policy.
Because a contractor or other involved party could be held
liable for defects in a subcontractor’s work years after it has been completed,
and filing the claim under the contractor’s CGL policy could cause the premium
to rise, many construction contracts require subcontractors to provide
insurance coverage for claims resulting from their completed work for a finite
period of time, typically the one- to five-year range. Typical contracts also
require that the subcontractor name the owner, the architect, the general
contractor and other third parties as “additional insured” parties, entitled to
coverage under the insured subcontractor’s CGL policy. Naming additional
insured parties requires a separate endorsement to that policy.
This means that as a subcontractor, you can be held liable
for claims of property damage or bodily injury resulting from a defect in your
work. It is also critical to maintain this coverage into the future; failure to
do so could lead to a breach-of-contract lawsuit brought by the contractor or
It is important to understand this commitment when signing
the contract–the insurance commitment doesn’t end with the project.
Furthermore, in the event of a large claim, the subcontractor could be faced
with a substantial increase in premiums on the policy.
To avoid litigation, it is crucial to know local regulations
and adequately document proper performance. Know your company’s documentation
practices relative to each subcontract, and carefully keep records of all processes.
Respecting the Contract
It is crucial for subcontractors to respect this requirement
if included in the contract. Failure to do so could result in
breach-of-contract lawsuits. Naming additional insured parties can be
complicated, and it is very important to work closely with CMR Risk &
Insurance Services, Inc. to ensure that your contractual obligations are