Byline: Jason Goldstein, Esq.

Commercial Investment Real Estate Magazine

 What you don’t know about your insurance can hurt you.

Commercial general liability insurance policies generally provide broad coverage, but the exclusions tacked on may winnow down that broad coverage and, in essence, re-write the policy in a far more restrictive fashion. This is especially the case with respect to the products completed operations hazard section found in every commercial general liability insurance policy. Developers and others involved in construction projects should understand its significance.

Whether it is the remodel of a residence or construction of the world’s largest skyscraper, in the context of insurance coverage, subject to certain exceptions, the type of project doesn’t matter. This is especially the case with respect to the application of the products completed operations hazard.

How It Works

For example, consider the development of an apartment complex. Prior to beginning the project, everyone involved — from the developer who conceived the idea to the subcontractor laying bathroom tile — had to obtain commercial general liability insurance in order to work on the project.

The general contractor obtains a certificate of insurance from each subcontractor involved, prior to their commencing work on the project. Each of the certificates of insurance states that the general contractor and the developer were added as additional insureds under the subcontractors’ insurance policies.

The attempt to compile insurance information for the parties involved in building the apartment complex helps ensure that the construction project can be completed in the most efficient manner possible, with any potential adverse costs transferred to the insurance company.

The apartment complex progresses from concept to completion. No one is hurt on the job. No property is damaged in the process. All of the companies involved in the project are paid. This construction project is finally over. Or is it?

The apartment complex is leased. Sometime later, a maintenance engineer is up on the roof and steps onto a section that caves in. This defectively constructed roof causes the engineer to fall and he becomes a quadriplegic. A lawsuit ensues; the roofer, the general contractor, and the developer are all sued. Damages in such a case can be in the tens of millions of dollars.

The developer tenders a claim to its insurer, as well as to those of the general contractor and the roofer. The general contractor tenders a claim to its insurer and that of the roofer. The roofer tenders a claim to its insurer only. Why is it that all of these tenders of claim can be properly denied? It is because of the “products completed operations hazard.”

Most commercial general liability insurance policies contain either an exclusion or an endorsement to the effect that “this insurance does not apply to ‘bodily injury’ or ‘property damage’ included within the ‘products completed operations hazard.’”

This type of language specifically excludes from coverage any damage to person or property that happens after a project is completed. Therefore, although the apartment complex may have been built without any problems, this does not mean that the potential liability with respect to the construction ended with the receipt of final payment for the work performed.

Therefore, when considering the next construction project, not only must one consider insurance coverage for the pitfalls that may ensue during the construction project itself, but one also must consider the pitfalls that may ensue after the construction project is completed. A detailed review of your insurance policy by counsel, in conjunction with obtaining endorsement options from an insurance broker, could help to avoid costly liability in the future, including liabilities that would fall within the “products completed operations hazard.”