As a general contractor or artisan contractor, having proper insurance coverage is essential to protecting your business long after construction projects are complete. Completed operations liability insurance specifically helps cover the costs if your business is found legally liable for third party bodily injury or property damage that arises out of your work even years after the project is finished. Without adequate completed operations coverage, lawsuits or claims alleging your past work was negligent could lead to financial devastation.
This in-depth guide will thoroughly explain everything general contractors and artisan contractors need to know about securing the optimal completed operations liability policy. Key topics covered include:
- What Is It?
- Why Do You Need It?
- What Is Covered?
- What Is NOT Covered?
- Required Policy Limits
- Costs & Premium Factors
- Ways to Reduce Your Costs
- Safety Tips to Lower Your Premiums
- How To Obtain Coverage
Read on for a comprehensive overview of how completed operations insurance functions and why securing the right policy is so crucial for general and artisan contractors after projects are turned over.
What is Completed Operations Liability Insurance?
Completed operations liability insurance provides financial protection for your contracting business in the event you are found legally liable for third party bodily injury or property damage arising out of your work even years after construction is fully complete.
For example, if 5 years after completing a deck project the wood gives way causing injury, the homeowner could allege your improper construction led to their harm long after the fact. Or 10 years after finishing renovations, hidden water damage behind walls could be discovered leading to costly repairs. In cases like these, completed operations coverage would pay for any settlements awarded to the injured party up to the policy limits. It also covers all legal defense fees and court costs associated with defending against a covered liability claim.
Without this extended protection, claims alleging your past work was negligent could lead to financial ruin even a decade later. Completed operations insurance helps guard against this long-tail risk.
Why Do Contractors Need Completed Operations Liability Insurance?
Many construction defects, building code violations, and improper installation techniques don’t necessarily lead to injury or cause noticeable property damage right away. Faulty workmanship or hidden flaws can go undetected for months or years before finally resulting in extensive water damage, mold, structural failures, electrical fires, or even wrongful death.
Yet under general liability insurance alone, once a project is completed and handed off, claims arising after that point may no longer be covered. This leaves contractors vulnerable.
Some examples of long-tail risks include:
- Improper installation of plumbing systems leading to leaks several years later.
- Defective waterproofing causing rot, mold and structural weakness over time.
- Faulty electrical wiring eventually causing fires.
- Use of toxic materials like asbestos leading to disease claims.
- Structural collapse due to poor engineering or errors during construction.
With completed operations coverage, contractors gain extended protection from these kinds of latent defects and flaws in their workmanship that they would otherwise be liable for. It covers claims alleging your negligence – even if problems arise years later. This added insurance is invaluable.
What Does Completed Operations Liability Insurance Cover For Contractors?
Completed operations liability insurance policies are designed to provide protection for your contracting business against the legal costs and payouts associated with bodily injury or property damage claims that arise out of your work long after projects are handed off. This includes:
Bodily Injury:
Covers medical bills, lost wages, rehabilitation and pain and suffering damages if an injury claim is brought against your business by an injured party related to construction defects or flaws that arise years later. For example, reimbursement for injuries if a balcony collapses 5 years after construction due to your negligent framing work.
Property Damage:
Provides protection if you are liable for property destruction that arises well after completion related to your negligent work. For instance, covers water damage repairs to walls, floors and furnishings if faulty plumbing installed by you springs a leak a decade later.
With the extended protection window completed operations insurance provides, contractors can defend themselves against premise liability and negligence claims alleging improper work – even if issues don’t arise until the statute of limitations expires. It’s essential protection from long-tail risks.
What’s NOT Covered By Completed Operations Insurance?
While completed operations policies provide broad protection against latent defects, some exposures are excluded. Common exclusions include:
- Normal wear and tear or gradual deterioration of property over time not caused by faulty workmanship.
- Damage caused by pre-existing conditions out of your control.
- Damage to your own tools, equipment or other property.
- Liability arising from the use of automobiles after project completion.
- Intentionally inflicted harm.
- Liability assumed under contract outside policy terms.
It mainly excludes standard coverage gaps of a general liability policy. But protecting yourself from long-tail bodily injury and property damage claims is the primary focus.
What Are The Required Policy Limits For Contractors?
The amount of completed operations liability insurance contractors need to carry depends on several factors:
State Requirements – Some states mandate minimum liability limits for contractors. Different states have different limits. Check your state laws.
Contract Needs – Large commercial clients or government contracts may stipulate certain liability limits you must meet. Review project requirements.
Revenue Size – Larger companies with more exposure need higher liability limits. Most experts recommend at least:
- $1 million per occurrence for small contractors to mid-size companies.
- $2 million or higher per occurrence limits for large contractors.
Your Assets – Consider an amount sufficient to protect your business assets and personal assets like your home if sued. Don’t leave yourself financially exposed.
Industry Norms – Check what coverage levels other comparable contractors carry so you are properly insured relative to competitors. Don’t underinsure.
Consulting an insurance professional is wise to determine what liability limits adequately fit your contracting business based on these factors. Never take shortcuts when it comes to protecting your company many years down the road.
What Does Contractors Completed Operations Liability Insurance Cost?
As a contractor, you want to evaluate both your level of long-term risk and any state minimum requirements when deciding how much completed operations coverage to purchase. Most experts recommend contractors carry at least:
- Per Occurrence Limit: $1,000,000 per occurrence for bodily injury and property damage. Larger contracting companies with significant exposure may opt for a higher limit such as $2 million per occurrence.
- Aggregate Limit: Your total aggregate limit across all claims should generally equal double your per occurrence limit. So if you choose a $1 million per occurrence limit, your aggregate would be $2 million. For larger businesses, a $4 million aggregate is recommended.
Here’s a table summarizing average completed operations liability insurance premiums for General Contractors:
| State | $500K Revenue | $1M Revenue | $2.5M Revenue |
|---|---|---|---|
| California | $1,600 | $2,800 | $5,800 |
| Texas | $1,500 | $2,500 | $5,900 |
| Florida | $1,900 | $3,100 | $7,900 |
| New York | $2,900 | $5,100 | $15,100 |
| Pennsylvania | $1,800 | $3,200 | $7,700 |
| Illinois | $1,900 | $3,300 | $10,400 |
| Ohio | $700 | $1,300 | $4,100 |
| Georgia | $1,000 | $1,700 | $3,700 |
| North Carolina | $1,000 | $1,700 | $4,600 |
| Michigan | $1,200 | $1,900 | $4,500 |
Here are potential savings working with a specialist independent agent on completed operations liability insurance for General Contractors:
| State | $500K Revenue | Implied Savings | $1M Revenue | Implied Savings | $2.5M Revenue | Implied Savings |
|---|---|---|---|---|---|---|
| California | $1,100 | 31% | $2,200 | 21% | $4,600 | 21% |
| Texas | $750 | 50% | $1,500 | 40% | $4,000 | 32% |
| Florida | $1,100 | 42% | $2,200 | 29% | $5,400 | 32% |
| New York | $2,300 | 21% | $4,000 | 22% | $12,000 | 21% |
| Pennsylvania | $900 | 50% | $1,900 | 41% | $4,800 | 38% |
| Illinois | $1,300 | 32% | $2,500 | 24% | $7,400 | 29% |
| Ohio | $500 | 29% | $900 | 31% | $2,900 | 29% |
| Georgia | $600 | 40% | $1,200 | 29% | $2,600 | 30% |
| North Carolina | $500 | 50% | $1,000 | 41% | $3,200 | 30% |
| Michigan | $700 | 42% | $1,300 | 32% | $3,200 | 29% |
As shown, geographic location, services provided, safety record and coverage limits selected all contribute to pricing. An independent agent can help find the right fit balancing premium costs and protection.
The cost of completed operations insurance for contractors varies based on these key factors:
Revenue Size – In general, the more annual revenue your contracting business generates, the greater your long-term exposure and higher your premiums.
Services Offered – Contractors performing more complex work like new home construction, roofing, framing, electrical and plumbing tend to pay higher premiums than simple contractor services.
Location – Geographic region influences rates too. Contractors operating in urban coastal states with higher litigation risks pay more than rural areas.
Claims History – Too many past defect claims alleging faulty workmanship leads insurers to deem you high risk and raise rates. A clean loss run helps keep premiums down.
Coverage Limits – Choosing higher liability limits necessarily means paying more in premiums. But higher limits also reduce the financial risk you retain.
Safety Record – Contractors with strict quality control procedures in place qualify for noticeably lower premiums compared to lax contractors.
Understanding the cost of completed operations liability insurance for contractors can help you better manage your business finances.
5 Ways Contractors Can Reduce Their Completed Operations Costs
Since completed operations represents a major overhead expense, controlling premium costs is important. Strategies to lower your rates include:
1. Increase Your Deductible – Choosing a higher deductible amount like $2,500 or $5,000 reduces your premiums somewhat. Just don’t set it so high claims would be a burden.
2. Maintain Good Loss History – Minimizing past defect claims helps keep your premiums low long-term. Too many can lead insurers to deem you high risk.
3. Improve Quality Processes – Documented rigorous quality control and assurance programs can earn you a discount for being low risk.
4. Ask About Contractor Discounts – Some insurers offer discounts for contractors who complete risk management courses.
5. Bundle Insurance Policies – Purchasing completed operations along with general liability and other policies earns multi-policy discounts.
The most impactful way for contractors to control costs, however, is to invest in quality workmanship and safety. Preventing construction defects protects you decades later.
How Contractors Can Enhance Quality To Reduce Claims And Premiums
By making workmanship quality and safety core priorities, contractors can achieve lower completed operations premiums over the long run. Steps to produce better projects include:
Use High Grade Materials – Don’t cut corners. Spend a little more upfront on quality building materials and hardware that will last.
Hire Skilled Employees – Invest in workers with years of experience, certifications, training and a track record of high quality work. Don’t just hire the cheapest labor.
Perform Thorough Inspections – Rigorously inspect all completed work for flaws, improper installations or code violations before turning projects over.
Document Extensively – Take detailed photos and keep complete project records documenting code compliance to defend against fraudulent claims.
Fix Mistakes Promptly – If clients notify you of any issues down the road, address problems immediately to prevent major damage.
Use Watertight Contracts – Include clear scopes of work in client contracts detailing what you will and won’t be responsible for liability-wise post completion.
Keep Current on Building Codes – Stay up to date on all local building codes and regulations. Don’t take shortcuts. Exceeding codes helps avoid issues.
Delivering projects that meet the highest standards of quality and safety directly translates into fewer lawsuits, smaller defect claims and lower completed operations insurance costs over your career. It pays big dividends.
How Contractors Should Obtain Completed Operations Liability Insurance
For assistance evaluating your unique risks and finding affordable completed operations coverage tailored to your contracting business, independent insurance agents are your best resource. Avoid just going directly to insurance carriers. Quality agents provide key advantages:
Greater Policy Selection – Independent agents can access multiple specialized insurance carriers, not just a single company. This enables them to compare many coverage options to find you the optimal liability fit.
Customized Coverages – They help build the right policy with enhancements and add-ons specific to contractor risks like latent defects, faulty workmanship claims, etc.
Superior Guidance – Agents experienced with contractor and construction policies can answer questions and explain how completed operations coverages apply to your business in easy to understand language.
Risk Management Assistance – They provide loss control guidance tailored to minimizing contractor defect claims that arise long after completion.
For contractors, partnering with the right independent agent delivers tremendous advantages in securing tailored completed operations coverage at competitive rates. Agents simplify securing this essential protection.
Conclusion
Completed operations liability insurance provides crucial protection to general contractors and artisan contractors, helping shield their assets decades down the road when substantial claims alleging past faulty workmanship arise. It covers legal costs and settlements associated with long-tail injury and property damage claims.
Yet purchasing the right policy at an affordable premium requires expertise. Factors like your risk profile, coverage limits, policy enhancements and safety record all impact costs. We hope this guide provides contractors with tremendous value in learning the critical role completed operations insurance plays and how to optimize your policy. Don’t leave yourself financially exposed well after jobs are complete. Please reach out with any additional questions!