The recent economic downturn and credit crisis have caused many construction projects to remain incomplete, leaving general contractors unsure what their property and casualty insurance programs may cover.
Contractors Leaving a Partially Completed Project Contractors exiting a partially completed project due to financing issues, nonpayment, defaults or similar dilemmas must quickly evaluate their potential exposures. Depending on their termination agreements, contractors need to examine whether potential liabilities or contractual responsibilities remain with the project. Immediate questions arise about who will be responsible for continued project site safety, and who will protect completed work, tools and supplies—especially if the project remains dormant for an extended period of time.
If possible, consider extending the project’s builder’s risk policy and the commercial general liability (CGL) policy for any continued operations at the project site.
Also, determine if future liabilities from work completed under the contract will be covered under the CGL policy.
The CGL policy’s products/completed operations coverage provides protection for any property damage for which a contractor may be liable if the damage generally takes place once the contractor has finished the work, or the work has been put into its intended use. The coverage includes all bodily injury and property damage occurring away from premises it owns or rents and rising out of its product or its work.
Under the policy, work is considered completed:
- when all the named insured’s work as required by contract has been finished;
- when all the work at the jobsite has been completed (if the named insured’s contract requires work under the same contract but at another jobsite); or
- when that part of work done at a jobsite has been put into its intended use by someone other than another contractor or subcontractor working on the same project.
Completing work as required by the project’s contract is a vital component of triggering products/completed operations coverage under the CGL policy. The contractor is insured for its work and subject to any other policy exclusions within the scope of its contract with the owner.
To clarify this issue for unfinished projects, contractors need to craft their agreements to accurately reflect the changes on the job. This includes having amendments to the contract that document the decreased scope in the contractor’s work. Certain policy endorsements to the CGL policy also should be considered to broaden the application of the product/completed operations coverage.
Contractors should secure documentation showing what work has been completed throughout the entire project. This can be accomplished by photographic evidence, contract changes and outside inspections. This documentation also may be helpful if a dispute or claim arises.