M&A, Bankruptcy, and Insurance (Part 2)

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M&A insurance coverage issue: discontinued operations

Insurance policies define completed or discontinued operations differently than does common law. When making something other than personal property, such as a building, general liability insurance separates that coverage from "products" in the policy definitions. The general liability policy still uses one aggregate policy limit for both types of suits and uses a combined definition call "products-completed operations hazard" to do so.

Liability exposures are ongoing after the construction portion is complete. The policy in effect at the time of "bodily injury" or "property damage" is the policy (or policies) that will respond under an "occurrence" policy.

Differing state statutes, such as patent defect statutes of repose or latent defect statutes of repose, will affect the insured's exposures as relates to "property damage" involving the constructed building.

State statutes vary as relates to other types of "property damage" and "bodily injury" claims. The biggest area of confusion is the timeline of loss versus the coverage trigger in the insurance policy.

Products-completed operations hazard
"16.Products-completed operations hazard:
a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned."

However, "your work" will be deemed completed at the earliest of the following times:

When all of the work called for in your contract has been completed

When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site

When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.