It has become commonplace on commercial
construction projects for owners
to require their contractors to name
the owner – and potentially others, such
as the owner’s principals – as additional
named insureds under the contractor’s
commercial general liability (CGL) policies
required for the project. These insurance
requirements are oftentimes flowed down
to subcontractors, meaning the subcontractors
are also required to obtain additional
insured (AI) endorsements on their CGL
policies – naming the owner as well as the
contractor as additional insureds.
Historically, there has been no shortage
of coverage litigation related to AI endorsements
and the specific language used in the
endorsement can have a critical effect on the
scope of the coverage provided. AI endorsements
come in many forms, from Insurance
Service Office (ISO) form endorsements,
which have evolved multiple times over the
last 30 years, to manuscript AI endorsements
of all shapes and sizes. Most of these
changes have been in response to the numerous
disputes surrounding AI endorsements.
These disputes surface over issues such as
whether the additional insured is covered
for its own negligence, only the negligence of
the insured, for particular projects or activities,
and for what time period.
Of particular recent interest are the
differences of interpretation for key terms
in AI endorsements such as “ongoing operations”
and “your work”, in conjunction with
“arising out of ” in various jurisdictions and
the impact that jurisdictional differences
can have on the scope of coverage provided;
particularly for “completed operations.”
Town of Fort Ann and ongoing
dam operations
For example, a broad interpretation came
out of New York in Town of Fort Ann v.
Liberty Mutual Ins. Co., 69 A.D.3d 1261,
1262-63 (3d Dep’t 2010), finding that
“ongoing operations” meant more than
when work was currently in progress. The
failure of the dam in Town of Fort Ann
took place after “major construction…had
ended,” but the work was not considered
complete under the contract because all
inspections had not occurred. However,
other courts have construed similar language
as only providing coverage for liability
that arises while the work is actually
in progress and that “completed operations”
were excluded. See Davis v. Liberty
Mut. Grp., 814 F. Supp. 2d 1111, 1121
(W.D. Wash. 2011); Hartford Ins. Co. v.
Ohio Cas. Ins. Co., 145 Wn. App. 765, 189
P.3d 195, 201 - 202 (Wash. App. 2008);
Weitz Co., Ltd. Liab. Co. v. Mid Century
Ins. Co., 181 P.3d 309, 313-15 (Colo.
App. 2007) (“The term ‘ongoing operations’
used in conjunction with ‘only’ in
the endorsement limits the coverage provided
to the general contractor or additional
insured,” and differentiates what
is covered from “completed operations.”)
Other courts have found that “ongoing
operations” is ambiguous as to whether it
imparts temporal limitations on AI coverage.
See McMillin Construction Servs.,
L.P. v. Arch Specialty Ins. Co., 2012 U.S.
District LEXIS 8339 (S.D. Cal. 2012).
Pulte Home Corp and ambiguous
“ongoing operations” language
The California Court of Appeal in Pulte
Home Corp. v. American Safety Indemnity
Co., No. D070478, 2017 WL 3725045
(Cal. Ct. App. Aug. 30, 2017) recently
issued a broad coverage decision after interpreting
similar language in a manuscript
AI endorsement. The court affirmed the
trial court’s ruling in favor of a developer/
contractor and affirmed punitive damages
against the insurance carrier for its bad faith
denial of a defense.
The case arose from Pulte’s development
of two residential projects in Southern
California beginning in 2003. The homes
were sold from 2005 to 2006. Pulte was
named as an additional insured on certain
subcontractor policies issued by American
Safety from 2003-2006. After residents of
the developments filed construction defect
suits against Pulte in 2011 and 2013, Pulte
tendered the claims to American Safety,
which denied Pulte’s request for a defense
based primarily on the position that the AI
endorsements excluded the subcontractors’
completed operations. Pulte then filed suit
against American Safety.
Does your additional insured endorsement
cover completed operations?
By Benjamin J. Morris, Foley & Lardner LLP
LEGAL
LESSONS
LEARNED niserin / 123RF Stock Photo
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