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Completed Operations Liability and Obligations

By January 21, 2022May 9th, 2023No Comments
Completed Operations Liability and Obligations

Potential claims of property damage or bodily injury can still arise despite the presence of quality workmanship. The work carries a risk that injury or damage may occur, which could result in costly lawsuits. With the complicated mix of contractors and subcontractors involved in each project, determining who is liable for this risk can be difficult. It’s important to understand the obligations and liability associated with operations to navigate this convoluted issue.

Operations Liability and Obligations: Defining Responsibility

In an insurance policy, “your work” refers to work that the policyholder or someone acting on their behalf performs. This encompasses the use of materials, parts, or equipment in connection with the operations. If a subcontractor performs work on behalf of the policyholder, it is considered the contractor’s work. Consequently, if an electrician’s faulty electrical work results in a fire or other damage, the contractor may be held liable. Nonetheless, a standard commercial general liability (CGL) policy would cover such liability.

Operations Liability and Obligations: Contract Requirements

A contractor or other involved party could be held liable for defects in a subcontractor’s work years after it has been completed. Plus, 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. This is especially true for 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. This entitles them to coverage under the insured subcontractor’s CGL policy. Naming additional insured parties requires a separate endorsement to that policy.

Operations Liability and Obligations: Contract Implications

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 other party.

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.

Reducing Risk

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 is complicated, so it is very important to work closely with O’Connor Insurance Associates at 704-510-8884 to ensure that your operations liability and obligations are satisfied.

This Risk Insights is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2011 Zywave, Inc. All rights reserved.

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