An accounting firm on a building's top floor accused the roofing contractor of ruining its computer network equipment, even though the contractor wasn't working on the building at the time. The contractor had finished replacing the roof in September.
Heavy snows fell that winter, and it started melting rapidly when March brought above-normal temperatures. The accounting firm's systems support analyst came in to work on a Monday morning to find pools of water in the server room and the servers inoperable. Given that the first four months of the year are a somewhat busy time for accountants, the firm could not remain without its computer network for long.
The firm rush-ordered new servers, paid a premium for express shipping, then paid technicians to remove the ruined servers, install the new ones, restore data from off-site backups, and perform network testing within a few days. The cost to the firm was high, both in terms of repair and replacement and in extra expenses for staff accessing an alternative network. The firm sued the building owner and the roofing contractor to recover thousands of dollars in losses.
This is where the contractor's Completed Operations Liability insurance coverage came in handy. This insurance covers the contractor's legal liability for bodily injury or property damage that his work causes after he has finished it.
Before the insurance applies, however, the incident must meet several conditions.
Conditions for coverage
- The incident must be an “occurrence.” The policy defines this as an accident, but it can also be damage that happens over time because of harmful conditions. The roof suddenly letting melting snow gush all over the servers is an occurrence. So is the roof allowing melted snow to seep into the walls over a period of months, causing plywood and insulation to rot.
- It must occur during the policy term. It is not necessary for the contractor's mistake to happen during the policy term, but the injury or damage must occur then. The contractor finished the roof in September, his liability insurance policy renewed in January, and the damage to the servers occurred in March. The policy that took effect in January applied, not the one in effect in September.
- It must occur away from the contractor's own premises. Liability insurance does not apply to damage to premises the contractor owns or rents.
- The injury or damage must arise from the contractor's work. This means that the contractor's portion of the job led to the injury or damage. The roof was supposed to keep water out of the building; water entering the building implicates the work done.
- The contractor's work must be completed or abandoned. It's complete at the earliest of: when all the contract work is complete; when all the work at that job site is complete; or when the customer puts the work to its intended use. The contractor finished the roof in September and the building owner put it to immediate use, so the insurance company will consider it to be complete.
The insurance will not apply to bad work that did not cause damage to something else unless a subcontractor did the job for the contractor. If the building owner discovered the problem with the roof before the accountant's servers took a shower, the insurance would not apply to fixing the roof. It also doesn't cover liability for the building becoming unusable or less usable because it contains the contractor's defective work.
Contractors who work in roof or environmental exposures should review specialized options such as Roofing Operations Pollution Coverage to understand limits and exclusions that may apply to post-completion claims.
Similarly, contractors who handle water restoration or mold-related work may need tailored protection; see Fire and Water Restoration Contractors/Mold Coverage for coverage considerations specific to those risks.
Completed operations losses can be catastrophic; financial protection is essential. To confirm you have the right limits and endorsements, talk to an agent.
Frequently Asked Questions
What is completed operations coverage?
Completed operations coverage is liability insurance that pays for bodily injury or property damage claims that arise from work the contractor has finished and left at a job site.
When does this coverage apply after a job is done?
It applies when the plaintiff's injury or property damage occurs during the policy period, even if the work was performed under an earlier policy.
Will it pay to repair the contractor's defective work?
No—completed operations typically covers damage caused to other property, not the cost to fix the contractor's own defective work unless a subcontractor's involvement changes the situation under the policy.
How can a contractor reduce the risk of a claim?
Maintain good records, follow building codes, perform careful inspections before turnover, and carry appropriate completed operations limits and endorsements tailored to the work done.