Products-Completed Operations Coverage for a Closed Business
A mechanical contractor client in Rhode Island has a commercial general liability insurance policy on a standard CG 00 01 base coverage form, as well as a contractors liability enhancement form. The insured is prospecting a new job that requires it to maintain insurance coverage through the Rhode Island statute of repose, which is 10 years.
The policy says coverage would need to be in force at the time of an occurrence for the products-completed operations coverage to apply.
Q: What if the business closes in six years? Is there an ISO form that would grant coverage through the applicable statute of repose without needing to maintain an active insurance policy at the time of an occurrence?
Response 1: There really is no way to use ISO forms and rules to write a policy effective today that will insure against a loss that occurs 10 years from now. The ISO multi-state rules do permit writing policies “for a specific term up to three years or on a continuous basis.” If you can find a carrier willing to offer a multi-year or continuous policy, there are a couple of options:
CG 00 37 04 13. The occurrence version of the Products-Completed Operations Coverage Form. This policy would cover injuries or damages that occur during one of the policy periods.
CG 00 38 04 13. The claims-made version of the Products-Completed Operations Coverage Form. This policy would cover injuries or damages reported during one of the policy periods and would apply to any that occur on or after the retroactive date shown in the declarations.
What Do the Experts Say?
Both would need to be kept in force. The claims-made option theoretically carries a lower premium as more years pass between the end of the project and the effective date of the policy. For example, if the project completes on Jan. 1, 2026, a claims-made policy written to cover liability from that project in 2035 should carry a lower premium than one written in 2027.
If the carrier has an endorsement to limit the coverage to this specific project, theoretically, that would reduce both the scope of the coverage and the premium. ISO endorsement CG 21 44 04 17—Limitation of Coverage to Designated Premises, Project or Operation, accomplishes this, and there might be a specific carrier endorsement as well.
Response 2: I am not aware of any endorsement that would provide coverage for completed operations once the business closes and the CGL is cancelled or not renewed. If the business closes in six years and the obligation is for coverage for an additional four years, the contractor should purchase a liability policy that only provides coverage for discontinued operations, such as the CG 00 37 04 13. Hopefully, the carrier providing the CGL policy at the time the business closes would agree to issue the policy.
Even if there wasn’t such an obligation, the contractor should still purchase a discontinued operations liability policy.
Response 3: The insured needs to continue renewing its CGL to get the needed products-complete operations coverage. If the business closes, the insured can continue to purchase completed operations coverage on a discontinued operations policy. However, you must wait until the business closes before you can get the discontinued operations policy.
Response 4: There is no ISO extended completed operations endorsement. The extended completed operations is a proprietary form often offered by a nonadmitted insurer. Whether a contract is enforceable against a company that goes out of business seems a bit doubtful. Your customer should seek legal counsel if they are concerned with complying with that coverage requirement 10 years into the future.
This question was originally submitted by an agent through the Big “I” Virtual University’s (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.
This article is intended for general informational purposes only, and any opinions expressed are solely those of the author(s). The article is provided “as is” with no warranties or representations of any kind, and any liability is disclaimed that is in any way connected to reliance on or use of the information contained therein. The article is not intended to constitute and should not be considered legal or other professional advice, nor shall it serve as a substitute for obtaining such advice. If specific expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney or accountant, should be sought.
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