“Completed Operations” Exclusion

Under a standard CGL policy, coverage is excluded for “bodily injury” and “property damage” arising out of the insured’s work and included within the “products-completed operations hazard,” which is, generally, work that has been completed (the “completed operations exclusion”). Insureds typically argue that work negligently performed does not constitute a “completed operation.” A federal court interpreting Texas law recently addressed this exclusion in a case with interesting facts. See Zurich Specialties London, Ltd. v. Twiner, 2000 WL 33348237 (W.D. Tex., Nov. 13, 2000).

In Twiner, the plaintiff underwent hip replacement surgery. The surgery required the implantation of certain components, for which a “hip replacement package” was provided to the hospital by the insured. The insured’s representative was in the operating room during the operation. During surgery, the surgeon determined that a 43-inch “acetabular liner” had to be installed in plaintiff’s hip. The insured’s representative handed a 23-inch liner to the nurse, and the liner was implanted. After the operation, the mistake was realized and a second operation was necessary. The plaintiff sued for damages arising from the lengthier hospital stay due to the second operation.

A dispute over coverage arose. The carrier relied upon the “completed operations” exclusion. However, the insured contended that the exclusion did not bar coverage because it did not supply the correct size liner during the first operation, since it had not completed its responsibilities to the surgeon or to the patient. The carrier argued that the triggering event is not when the insured starts down the road to negligence, but rather the injury itself. The court accepted the carrier’s argument that the exclusion unambiguously turns upon the time, place, and circumstance under which injury occurs. The court reasoned that once the insured’s representative had handed the liner to the surgeon, all work called for in the insured’s contract was completed, alternatively, “that part of the work done at the job site had been put to its intended use.” The court, therefore, held that the exclusion precluded coverage under the policy.

The court’s holding is consistent with Texas law on this issue under analogous fact patterns. See Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722 (Tex. App.-Austin 2000, no pet.); Colony Ins. Co. v. H.R.K., Inc., 798 S.W.2d 848, 851 (Tex. App.-Dallas 1987, no writ); Mary Kay Cosmetics, Inc. v. North River Ins. Co., 739 S.W.2d 608, 612 (Tex. App.-Dallas 1987, no writ); Casey v. Employers Nat’l Ins. Co., 538 S.W.2d 181 (Tex. App.-Dallas 1976, writ ref’d n.r.e.); Maryland Cas. Co. v. Knorpp, 370 S.W.2d 898, 904 (Tex. App.-Amarillo 1963); Pan American Ins. Co. v. Cooper Butane Co., 300 S.W.2d 651 (Tex. 1957).

In fact, most courts have rejected the argument that an operation negligently performed cannot be a “completed operation.” See generally COUCH ON INSURANCE 3d §129:17. The leading case on the issue is Shelter Mut. Ins. Co. v. Gardner, 872 F. Supp. 622, 630 (W.D. Ark. 1995).

In Gardner, the court held that the plaintiff’s injury, caused by a leaking gas line defectively installed one year earlier by the insured plumber, was barred by the policy’s completed operations exclusion. The insured had, by the time of the plaintiff’s injury, completed his work and had no continuing obligations to the customer under the terms of his contract.

The court rejected the insured’s argument that the defective work was not complete until the defect was discovered and remedied, and held that, under the circumstances, the insurer did not remain indefinitely liable for the defective workmanship.