Products-completed operations coverage pays for injuries or property damage caused by a business’ products or operations. As a subset of general liability, businesses can either get this coverage through their general liability policy, a business owner’s policy (BOP), or a standalone policy. It is essential for contractors, service providers, and businesses manufacturing, distributing, or selling goods.
Typically, a small business can get a general liability policy that covers products-completed operations for around $700 to $3,000 per year. If a business needs a standalone policy, it will typically cost them $1 to $2 per $1,000 of product sold—or more for high-risk products.
When shopping, it can be overwhelming to know which company offers a quality product without overcharging you. That’s why it helps to work with an online broker like Simply Business. In 10 minutes or less, it will generate multiple quotes from different providers. Its method lets you compare quotes and coverage and even adjust limits to see how that impacts the price. You can then purchase a policy online or call one of its agents.
How Products-completed Operations Coverage Works
The products-completed operations coverage in a general liability policy is typically written on an occurrence basis, which means the policy must be in effect when the injury or property damage occurs. Additionally, the occurrence that triggers coverage has to happen away from the business premises. These criteria can confuse policyholders when it’s time to file a claim.
One way to avoid the dangers of an occurrence policy is to see if the insurer has an extended completed operations coverage endorsement. An insurance endorsement typically extends coverage for up to 10 years after the policy expires.
Products-completed operations coverage typically won’t pay when claims occur:
- After you’ve dropped your coverage: Say a contractor completes a job and cancels their general liability insurance a month later. Their insurer will not cover a claim for injuries a client suffers if the date of the injury occurs after the cancellation.
- On your business premises: An insurer will most likely deny a retailer’s claims if they sell a product to a customer who is hurt using it in the store. However, the general liability portion of the policy may kick in to pay for a third-party injury or property damage.
In these situations, the business owner can still be sued, but their legal fees and court costs will come out of their own pocket.
Products-completed Operations Coverage Limits
When describing limits, policies will have an occurrence limit and an aggregate limit.
- An occurrence limit is the limit allowed per each occurrence (meaning claim) filed on the policy. The occurrence limit feeds into the aggregate limit.
- An aggregate limit is the total amount that insurers pay for claims throughout the policy term.
Products-completed operations coverage in general liability insurance has an aggregate limit that is separate from the general aggregate limit. Most claims count against the general aggregate, but products-completed operations claims only impact the products-completed operations aggregate limit since the limit is separate.
Selecting a lower limit on your products-completed operations aggregate limit can reduce your overall premium. However, that may mean you don’t have enough coverage if you end up in court. This makes it important to balance what you want to pay each year against how much a product liability lawsuit might cost.
Products-completed Operations Coverage Example
Imagine a retailer that sells children’s toys. Its products-completed operations coverage may seem unnecessary since it only sells toys—until a customer claims their child was injured by a defective toy.
The customer’s lawyer will likely name everyone involved with bringing the toy to market in the lawsuit, including the retailer. Luckily, the retailer’s products-completed operation coverage can pay for their defense.
However, this situation could play out differently for the manufacturer of the toy. First, the manufacturer is much more likely to be found liable for the defective product. Moreover, it may face multiple lawsuits based on the same defective toy. Each lawsuit eats away at its products-completed operations aggregate limit and the per-occurrence limit in its general liability policy.
With a standalone policy, the toy manufacturer is less likely to exceed its coverage limit, which could be a real risk if its only product liability coverage is part of its general liability policy.
What Products-completed Operations Covers
In general, products-completed operations coverage protects small business owners when someone claims they suffered bodily injury or property damage as a result of a business’ product. The types of claims that it typically protects against include defects caused by accidents and intentional behaviors.
Some claims covered by products-completed operations coverage include:
- Accidental contamination, such as E.coli ending up in food
- Labeling mistakes, such as a label misidentifying a product as lead-free
- Accidental defects, such as battery defect causing spontaneous combustion when being charged
- Malicious tampering, such as a hostile assembly line worker interfering with ingredients
- Food poisoning: While it can be difficult to prove, food poisoning typically falls under the “defective product” category of products-completed operations coverage.
- Medical costs: If the food poisoning in the previous bullet point led to hospitalization, product liability could help offset the medical costs.
- Repair costs: If a product sold by your business leads to damage to someone else’s property.
- Legal fees: If a claim is unresolved and heads to court.
If a business owner faces a product liability lawsuit, their products-completed operations coverage kicks in to pay for their attorney’s fees, court costs, and other legal bills. Depending on the policy, the legal fees may be considered part of the aggregate total paid by the liability policy. Check your policy to ensure that you understand how legal fees are covered.
What Products-completed Operations Coverage Doesn’t Cover
Products-completed operations coverage has four standard exclusions. Exclusions are situations that your insurance policy does not cover and that are explicitly spelled out in the contract.
The four standard exclusions in completed operations coverage are:
- Damage to your product: Your products-completed operations coverage only kicks in for damage to property other than your product. Let’s say you sell appliances, and a customer receives a broken dishwasher. Your insurer won’t cover the claim because no other property has been damaged. However, if a busted hose causes flooding, your insurer will most likely cover the claim.
- Damage to your work: For instance, a carpenter completing a stairway breaks under the weight of a client. That client might only sue for the damaged stairway. Because that’s the carpenter’s work, the insurance company won’t pay. However, the claim may be covered if the client sues for an injury from the stairway breaking.
- Note: Subcontractors are an exception to this exclusion. If the carpenter had hired a subcontractor to build the stairway, then the insurer usually pays the claim.
- Damage to impaired products: Claims stemming from property that’s defective because it contains your defective product or work are also excluded. For example, if a manufacturer’s flawed widget causes laptops to explode, its insurer probably won’t pay the ensuing claims for the damaged laptops (but will pay the claims for any property damage or injury caused by an exploding laptop).
- Recall expenses: To be fully protected, a business would need a specialty policy known as product recall insurance, which will pay costs associated with getting a defective product off of store shelves.
Who Needs Products-completed Operations Coverage?
Any business that has a finished product is a business that needs to ensure that it has enough products-completed operations coverage. While any business with a general liability policy will have at least a minimal amount of coverage—as low as $100,000—businesses with more risk may want to increase coverage or get a specialized policy.
Simply put, if consumers walk away from your business with a product in hand, you need to have some products-completed operations coverage. This is because of the risk that the product may accidentally cause harm or property damage.
Products-completed Operations vs Standalone Product Liability Insurance
Most small business owners find the products-completed operations coverage in their general liability sufficient for their needs. However, some businesses, like manufacturers and product designers, face greater product liability risks and may need a standalone product liability insurance policy. Product liability is designed to meet that increased need and is typically sold through specialty insurers.
Standalone product liability insurance works in much the same way as the coverage found in general liability. It pays for your legal defense if your product or service causes injuries or damages and only kicks in when damages occur away from your business premises. Product liability policies can have higher limits than what’s available in general liability policies.
As a rule of thumb, manufacturers can pay anywhere from $1 to $2 per $1,000 of product sold for a policy with products that are deemed less risky. This means that a low-risk business, like a retailer or distributor, might pay $1,500 to $2,500 per year for product liability insurance.
High-risk businesses can pay substantially more—between $6,000 to $12,000 or more annually. While this may seem high, product liability claims have a higher average award when the claim goes to court than general liability claims.
Manufacturers often buy product liability insurance for added protection because the product liability suits they face usually involve multiple incidents and plaintiffs. The costs can add up quickly, and manufacturers would be on the hook for large portions of it if they only carried general liability insurance with products-completed operations coverage.
Frequently Asked Questions (FAQs)
General liability is a type of liability insurance that can carry multiple types of coverage within it, including products-completed operations. Product liability is narrower in coverage than general liability, focusing specifically on losses from products made by or distributed by your business. Product liability can also be purchased as a standalone policy.
Price varies depending on industry and risk, but manufacturers usually pay anywhere from $1 to $2 per $1,000 of product sold.
The products-completed operations aggregate limit is the total limit for a policy or specific coverage. If the aggregate limit is $2 million, every claim filed during a policy period will eat away at that amount until it is exhausted. On a general liability policy, completed operations coverage typically has a separate aggregate limit.
Most small business owners face some product liability risk, which is why standard general liability insurance includes products-completed operations coverage. However, those at high risk may need specialty insurance, like a standalone product liability policy. Business owners need to assess their risk to determine the coverage limits that make sense for them.
While insurance may seem confusing—it doesn’t have to be. Simply Business helps make the process of comparing policies and purchasing insurance simple. Either online or over the phone with one of its agents, it can explain coverages and costs and help you find the right liability insurance for your business.