Casualty Actuarial Society (CAS) Practice Exam

Which situation generates completed operations loss exposures?

1. Employee negligence leading to property damage

2. Defective parts causing bodily injury after work is completed

3. Unforeseen circumstances affecting a business's operations

4. Natural wear and tear on industry machinery

The correct answer is: Defective parts causing bodily injury after work is completed

The situation that generates completed operations loss exposures is one in which there are defects in work that lead to bodily injury or property damage after the work has been completed. This aligns precisely with the nature of completed operations coverage, which is designed to protect businesses against claims arising from their operations once the work has been finalized and the business has left the site. When defective parts lead to injury or damage once the job is done, it indicates that the work performed did not meet the expected standards, creating a potential liability for the business involved. This scenario highlights the risk that even after a project is finished, the outcomes of that project can have lasting impacts, necessitating safeguards provided by completed operations coverage. Other situations do not align with this concept. For instance, employee negligence leading to immediate damage does not fit because it pertains to general liability rather than completed operations. Unforeseen circumstances affecting operations could create various challenges but do not directly connect to completed work. Lastly, natural wear and tear pertains more to maintenance issues rather than liability arising from completed operations.