What Does Products-Completed Operations Cover?

Products-Completed Operations (PCO) coverage is a component within a Commercial General Liability (CGL) insurance policy. It protects businesses from liability claims arising from injuries or property damage caused by their products or completed work. This coverage activates after the product has been delivered or the work has been finished and accepted, safeguarding against incidents after direct involvement ends.

Understanding Products-Completed Operations Coverage

Products-Completed Operations coverage is a Commercial General Liability (CGL) insurance policy component. It addresses liability from a business’s products or operations once they are no longer under its direct control. The “products” aspect covers bodily injury or property damage caused by goods manufactured, sold, handled, distributed, or disposed of by the insured business. This includes items processed or provided with containers, materials, or parts.

The “completed operations” aspect covers bodily injury or property damage from operations that have been completed or abandoned. This applies to work performed by the insured at a job site that has been put to its intended use by another party. For instance, if a contractor finishes a construction project and an issue arises weeks later due to their work, this coverage applies.

PCO coverage is distinct from “ongoing operations” coverage, which addresses incidents occurring while the business is actively performing work or when products are still under its direct control. PCO focuses on the period after the product has been delivered or the work finished and released to the client.

Scope of Covered Incidents

Products-Completed Operations coverage addresses incidents and damages occurring after a product has been sold or work completed. It covers bodily injury and property damage. Bodily injury refers to physical harm, sickness, or disease sustained by a person, including death. Property damage involves physical injury to tangible property, including loss of use.

For example, if a manufacturer sells a faulty appliance that causes a fire damaging a customer’s home, the property damage component of PCO coverage applies. Similarly, if a defective component in a product leads to an end-user injury, the bodily injury aspect of the policy is triggered. Another scenario involves a construction company completing a roofing project, where months later, a section collapses due to faulty installation, causing injury to occupants or damage to the building’s interior.

The “occurrence” trigger means bodily injury or property damage must occur during the policy period, even if the product was manufactured or work completed in a prior period. This ensures claims from long-tail exposures, where damage manifests later, are covered by the policy in effect when the damage occurs. PCO coverage includes legal defense costs for covered claims, which can be substantial even if a business is ultimately found not liable.

Common Exclusions

Products-Completed Operations coverage contains exclusions that define its limitations. One exclusion is for damage to the insured’s own product or work, often called the “your product” or “your work” exclusion. The policy generally does not pay to repair or replace the defective product or faulty work itself, but rather the resulting bodily injury or property damage to third parties. For instance, if a contractor’s faulty pipe bursts, the policy might cover water damage to the customer’s floor, but not the cost to replace the pipe itself.

Costs related to product recall are excluded from PCO coverage. Businesses often need a separate product recall insurance policy to cover expenses like notification, shipping, disposal, and the actual cost of the recalled product. Breach of contract claims are excluded unless the breach directly results in covered bodily injury or property damage. If a business fails to deliver on a contractual promise without causing physical harm or property damage, PCO coverage does not apply.

Professional liability, also known as errors and omissions (E&O) coverage, is distinct from PCO and explicitly excluded. PCO does not cover claims from professional advice, design errors, or negligence in professional services, which require a separate E&O policy. Intentional acts by the insured are excluded. Punitive damages, while sometimes awarded by courts, are often excluded from coverage by policy language or state law.

Importance for Businesses

Products-Completed Operations coverage protects businesses from significant financial liabilities. Manufacturers, distributors, and retailers are susceptible to product liability claims, even if they only handle a product and do not produce it. A product defect can lead to bodily injury or property damage long after it has been sold and left their premises. This coverage addresses that risk.

Contractors, including those in construction, plumbing, electrical, and HVAC trades, also face PCO risks. Their completed work, such as a newly installed heating system or repaired roof, can lead to incidents months or years after project completion. Without PCO coverage, a business could face legal defense costs, settlement payments, or judgments from post-completion claims. The long-term nature of these liabilities makes PCO coverage a key part of risk management.