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Companies in the finance space are required to maintain risk management policies that cover their current and past operations. This is done so companies can demonstrate an ability to assess, monitor and mitigate risks associated with each specific division of a firm’s business. However, these policies aren’t always comprehensive enough for many firms because they don’t account for all products or services offered by a company. For example, if you’re manufacturing cars but also offer insurance as part of your product offering it may not be covered under your existing policy – this is where coverage provided by products-completed operations comes into play.
“Products-completed Operations Coverage: What It Is & Who Needs It” is a type of insurance that covers products that have been completed but not yet delivered. Read more in detail here: products-completed operations example.
A general liability policy’s products-completed operations coverage compensates for injuries or property damage caused by a company’s goods or activities. Contractors, service providers, and enterprises that make, distribute, or sell things all need it.
For roughly $400 to $600 each year, a small firm may purchase a general liability coverage that covers products-completed operations. If a company requires a stand-alone insurance, it will cost $1 to $2 per $1,000 in sales, with higher costs for high-risk items.
What is Coverage for Products-Completed Operations?
Products-completed operations coverage is a kind of general liability insurance that protects your company if a third party, generally a customer, gets harmed or their property is damaged as a consequence of a product you’ve distributed. Businesses may get general liability coverage either via their general liability insurance, a business owners policy (BOP), or a standalone policy.
When a loss occurs as a result of a product’s completed dangers, claims may include medical charges, repair costs, and legal fees. Claims are usually covered, while certain plans may include an endorsement that expressly excludes them. It’s essential to go over your policy in depth, just like any other insurance policy, to completely understand what is and isn’t covered.
Standalone Product Liability Insurance vs. Products-Completed Operations
Most small company owners find that their general liability policy’s products-completed operations coverage is adequate for their requirements. Manufacturers and product designers, on the other hand, face higher product liability risks and may need a separate product liability coverage.
Product liability insurance, which is primarily marketed via speciality insurers, is meant to satisfy that rising demand. Standalone product liability insurance operates in a similar manner to general liability insurance. It covers your legal defense if your product or service causes injuries or damages, but only when such injuries or damages occur outside of your company.
General liability plans often have lower limits than product liability coverage. Manufacturers may pay between $1 and $2 per $1,000 of product sold for an insurance with fewer hazardous items, as a rule of thumb. A low-risk company, such as a retailer or distributor, may spend $1,500 to $2,500 per year for product liability insurance. High-risk firms may have to pay much more each year, ranging from $6,000 to $12,000 or more.
Because product liability actions often include several events and plaintiffs, manufacturers frequently purchase product liability insurance for increased protection. Manufacturers would be responsible for a significant amount of the expenditures if they simply had general liability insurance with products-completed operations coverage.
How Does Coverage for Products-Completed Operations Work?
A general liability insurance’s products-completed operations coverage is often provided on an occurrence basis, which means the policy must be in place at the time of the injury or property damage. Furthermore, the incident that triggers coverage must occur outside of the company premises. When it comes time to submit a claim, these criteria might be confusing to policyholders.
In certain cases, products-completed operations coverage is unlikely to pay:
- Claims that arise after you’ve canceled your insurance: If a contractor finishes a task and then cancels their general liability insurance a month later, their insurer will not pay a claim for injuries sustained by a client if the harm happens after the cancellation.
- Claims that occur on your business’s premises: If a shop sells a product to a customer who is injured while using it in the store, the insurer is likely to dismiss the claim. However, if a third-party injury or property damage occurs, the general liability element of the insurance may kick in to cover the costs.
The company owner may still be sued in these cases, but they will be responsible for their own legal bills and court costs.
A business owner might be sued for years after the product has been distributed—even after the company has closed. This is when having a completed-operations endorsement comes in handy. For up to ten years after the policy ends, it covers claims linked to items sold during the policy’s period.
What Is Covered by Products-Completed Operations?
When a company distributes a product, there is a possibility that it may cause injury or damage to others. A product-completed operations hazard is the name for this kind of danger. In general, products-completed operations coverage shields small business owners against claims of personal harm or property damage caused by a company’s product. Defects caused by accidents and purposeful conduct are two categories of claims that products-completed operations coverage normally protects against.
The following are some examples of claims covered under products-completed operations coverage:
- Contamination by accident, such as E. coli getting into medications.
- Labeling errors include, for example, mislabeling a product as lead-free.
- Accidental flaws, such as a battery flaw that causes spontaneous combustion while being charged
- Malicious tampering: a hostile assembly line worker meddling with chemicals, for example.
When a company owner is sued for product liability, their products-completed operations coverage comes in to cover attorney fees, court costs, and other legal expenses. Legal expenses may be included in the overall amount paid by the liability coverage, depending on the policy. Make sure you understand how legal expenses are covered in your coverage.
What Doesn’t Cover Products-Completed Operations?
Four basic exclusions apply to products-completed operations coverage. Exclusions are events that your insurance policy does not cover and are stated specifically in the contract.
The following are the four usual exclusions from completed operations coverage:
- Damage to your product: The damage-to-property-other-than-your-product coverage kicks in only if your product is damaged. Let’s imagine you sell appliances and a client gets a dishwasher that isn’t working properly. Because no other property has been harmed, your insurance will deny the claim. However, if a burst hose results in flooding, your insurance company is likely to reimburse the cost.
- Resultant harm to your work: Damage to your finished work is likewise not covered under the products-completed operations coverage. Consider a carpenter who finishes a stairwell and it breaks beneath the client’s weight. That customer could only claim for the stairwell damage. The insurance company will not pay since the carpenter did the job. However, if the customer sues for additional damages caused by the damaged stairwell, the claim may be covered.
This exclusion does not apply to subcontractors. The insurance normally settles the claim if the carpenter engaged a subcontractor to construct the stairwell.
- Damage to faulty products: Claims arising from property that is defective as a result of your faulty product or labor are likewise excluded. For example, if a manufacturer’s defective widget causes laptops to explode, the resulting claims for the damaged laptops are unlikely to be paid, but claims for property damage or injury caused by an exploding laptop will almost certainly be paid.
- Recall expenses: Items-completed operations coverage does not cover the costs of recalling faulty products. To be completely covered, a company would also need a product recall insurance coverage, which would cover the price of removing a faulty product from shop shelves.
Coverage Limits for Products-Completed Operations
The aggregate limit for products-completed operations coverage in general liability insurance is distinct from the standard aggregate limit. The entire amount that insurers pay for claims over the course of the policy period is known as the aggregate limit. The majority of claims affect the overall aggregate, however claims for products-completed operations only affect the products-completed operations aggregate limit. This implies you might have a general liability claim that exceeds the policy aggregate limit while simultaneously exceeding the policy limit for products-completed operations.
Selecting a smaller aggregate limit for your products-completed activities might decrease your total premium. However, if you wind yourself in court, you may not have adequate coverage. As a result, it’s critical to weigh how much you want to spend each year against the potential expense of a product liability lawsuit.
Example of Coverage for Products-Completed Operations
Consider a store that sells children’s toys. Because the major concern of a store is its consumers, it has chosen a general liability insurance with products-completed operations coverage. This manner, the merchant is covered for both in-store customer injuries and injuries caused by its products outside of the store.
Until a consumer alleges their kid was hurt by a faulty toy, the retailer’s products-completed operations coverage may seem unneeded. In the case, the customer’s lawyer is expected to identify everyone involved in bringing the toy to market, including the store. Fortunately, the retailer’s products-completed operation coverage will cover its legal fees.
For the toy’s producer, though, the scenario may turn out differently. To begin with, the producer is much more likely to be held responsible for the faulty goods. Furthermore, it may face many lawsuits stemming from the same faulty item. Each litigation depletes the company’s aggregate limit for finished operations and the per-occurrence limit under its general liability policy.
The toy maker is less likely to surpass its coverage limit with a standalone policy, which might be a genuine issue if its sole product liability coverage is included in its general liability policy.
Who Needs Coverage for Products-Completed Operations?
Any company that produces a finished product must ensure that it has enough coverage for products-completed operations. While every organization with a general liability insurance will have at least a basic level of coverage—as little as $100,000—those with higher risks may wish to expand coverage or seek a specialty policy. Simply stated, if customers leave your store with a product in their hands, you’ll need some products-completed operations coverage since there’s a chance the goods can cause injury or property damage.
Conclusion
Because most small company owners face some risk of product liability, typical general liability insurance provides coverage for products-completed operations. High-risk individuals, on the other hand, may need specialized insurance, such as a stand-alone product liability coverage. Business owners must estimate their risk in order to establish the appropriate coverage levels.
The “products-completed operations hazard definition” is a risk that can occur in the event of a product being completed. The company needs to have this insurance policy in place to protect them from any potential losses.
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