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Total Completion versus Substantial Completion

The issue of relying on Substantial Completion as a construction insurance coverage termination date is that construction activity often continues on site for several months after substantial completion has been reached. This has the potential to cause coordination problems and coverage gaps between the operating insurance and the ongoing construction activities.

„Substantial completion can cause coordination problems and coverage gaps.“

Substantial Performance of the Work

Substantial Completion marks the point in the construction timeline when, according to the Canadian Construction Documents Committee (CCDC) Stipulated Price Contract, „Substantial Performance of the Work shall have been reached when the Work is ready for use or is being used for the purpose intended and is so certified by the Consultant.“ This substantial completion period typically can trigger the issuance of a certificate of occupancy.

The issues with Substantial Completion clauses

Substantial Completion has been a staple for all Construction Phase policies – including Builder’s Risk policies and Wrap-up Liability coverages – to trigger the Completed Operations period. However, one of the primary issues with substantial completion language is that if the project is not actually complete, there can be an insurance coverage ‘gap’ if new work is started after the construction insurances are lapsed,  For example, in high rise buildings or large-scale shopping centers, while construction activities may be ‘substantially complete’ and an occupancy permit granted to allow unit owners or tenants to occupy the building, once the wrap up liability policy is lapsed the completed operations coverage (usually 365 days) commences.  Subsequently if work  starts that formed part of the original contract and a claim arises, insurers may deny that claim on the basis it was not ‘deficiency’ work covered under the completed operations period, but new work and the wrap up policy should have been maintained to cover it.

The CCDC Insurance Committee met in late 2015 to discuss the issue of substantial completion and total completion. The issue was presented to the committee by condo developers who draft their own construction contracts to explicitly define that construction activities are not complete until they have accepted the project as complete from contractors. But as most members of the committee were insurance providers, the language of the substantial completion agreement remained unchanged. So the issue of vague language and potential exposure to risk to owners and contractors until total completion persists in construction contracts.

Total Completion is preferable to Substantial Completion

To remove any uncertainty in the event of claim on a construction project, INTECH recommends that the construction insurance is maintained until total completion, and total completion is also defined in the construction contracts and the construction insurance policies.  This is particularly important for the project wrap up liability insurance to protect the interests of both the owner and contractors.

Director, Risk and Insurance Services
Tel: +1-416-583-3884
Email: jreeve@intechrisk.com

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