Completed Operations Coverage on Construction Projects

Most construction liability policies carry two aggregates: a general aggregate for most claims and a products-completed operations aggregate for claims within that hazard. Every completed operations payment during the policy period reduces the second one, regardless of which project the claim came from.

That is why a per-project aggregate endorsement on an annual policy can mislead. The ISO Designated Construction Project(s) General Aggregate Limit endorsement (CG 25 03, 05 09 edition) gives each scheduled project a separate aggregate for damages attributable only to ongoing operations at that project. It states that payments for injury or damage within the products-completed operations hazard reduce the products-completed operations aggregate instead. On an annual program, that aggregate is often shared by every project the contractor has ever finished.

A project-specific policy can be written with a completed operations aggregate that belongs to the project alone. Ask whether the aggregate is dedicated to the project for the whole completed operations term or whether it reinstates, and on what basis, if the term spans more than one policy period.

California Code of Civil Procedure §337.15 bars actions for latent deficiencies in design or construction, and for property damage arising from them, more than 10 years after substantial completion. A latent deficiency is one not apparent by reasonable inspection. The statute includes indemnity actions, and it does not apply to claims based on willful misconduct or fraudulent concealment, or protect a person in possession or control of the improvement when the deficiency causes the damage.

The 10-year clock starts at substantial completion, but no later than the first of four events: the final inspection by the public agency, recordation of a valid notice of completion, use or occupation of the improvement, or one year after work stops. For patent deficiencies, §337.1 sets a four-year period, extended to a five-year outer limit when injury occurs in the fourth year.

For-sale residential work follows a separate track. Civil Code §941 sets a 10-year period for actions under the state's construction defect title and states that §337.15 and §337.1 do not apply to those actions. A California residential developer's completed operations plan is usually measured against that 10-year horizon.

Texas Civil Practice and Remedies Code §16.009 generally requires suits against a person who constructs or repairs an improvement to be brought within 10 years after substantial completion, for property damage, personal injury, wrongful death, contribution and indemnity. A governmental entity generally has eight years, with exceptions for TxDOT, highway-funded and civil works projects. For residences, the period drops to six years when the contractor provides a written warranty meeting the statute's minimum terms. A written claim presented within the period can extend it, and injury in the final year allows suit within two years of accrual. Section 16.008 applies a parallel 10-year rule to architects and engineers.

Arizona's A.R.S. §12-552 bars contract and implied warranty actions against developers, designers and builders more than eight years after substantial completion. If injury occurs or a latent defect is discovered in the eighth year, the claim may be brought within one year, but never more than nine years after substantial completion. Substantial completion is the first of first use, availability for use or final inspection. The section does not apply to personal injury or death claims and does not shorten an express written warranty.

Each statute has exceptions, including fraud or willful misconduct and parties in possession of the property. The repose period is a planning horizon, not a promise that no claim can arrive later.

A project-specific policy is usually written for the construction period plus a completed operations extension. The length of that extension is negotiated, and carriers vary in what they will offer for residential, condominium and mixed-use work. The goal is to compare the extension with the repose period for the project's state and work type, then decide how much of the remaining exposure the developer or GC is willing to leave to future annual renewals.

Ask how the extension is earned and paid for, whether it can be canceled once the premium is paid, whether limits reinstate during the extension and whether the excess layers carry the same term. An excess policy that ends earlier than the primary's completed operations extension leaves the top of the tower exposed for the later years. On wrap-up programs the same questions apply to the completed operations term of the enrolled policy.

A defect alone is not usually what a liability policy responds to. Most forms are written around bodily injury or property damage caused by an occurrence, so the cost of repairing faulty work itself may be treated differently from damage that the faulty work causes to other property. Courts in each state have addressed how these terms apply, and the answer can depend on the facts and the policy language.

Exclusions shape the result as much as the insuring agreement. Look for the damage to your work exclusion and whether it carries the subcontractor exception, continuing or progressive damage language, earth movement and subsidence exclusions, and residential or condominium restrictions. A completed operations term is only as valuable as the exposures the form leaves in place.

Developers should also consider how warranty programs and homeowner association turnover interact with the liability program, because a warranty obligation and an insured claim are not the same thing.