Additional insured endorsements come in all shapes and sizes. Some cover the sole negligence of the additional insured. Others cover the additional insured only for the named insured's negligent acts. Still others cover particular projects or a particular activity. In every case, the language of the endorsement and the jurisdiction's interpretation of that language governs the scope of the coverage provided.
One type of additional insured endorsement expressly excludes coverage for completed operations: another includes language purporting to limit the scope of coverage provided to the "ongoing operations" of the named insured. Courts addressing these endorsements often direct their analysis at interpreting the phrase "arising out of" and whether these endorsements provide coverage for the additional insured's own negligence. See Andrew L. Youngquist, Inc. v. Cincinnati Ins., 625 N.W.2d 178, 184-5 (Minn. App. 2001) (holding that the phrase "arising out of your ongoing operations" covers the additional insured's own negligence); see also Mikula v. Miller Brewing, 701 N.W.2d 613 (Wis. App. 2005). As several courts make evident, these "ongoing operations" additional insured endorsements more often than not will cover claims arising out of the insured's completed work despite the endorsement's apparently clear language limiting coverage to ongoing operations.
The following are two examples of "ongoing operations" additional insured endorsements.
WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured and then only as respects any claim, loss or liability arising out of the operations of the Named Insured, and only if such claim, loss or liability is determined to be solely the negligence or responsibility of the Named Insured.
WHO IS AN INSURED (Section II) is amended to include as an insured, any person, organization, trustee, estate or governmental entity to whom or to which you are obligated by:
- virtue of a written contract; or
- The issuance or existence of a permit;
to provide insurance such as is afforded by this policy, but only with respect to liability arising out of:
- your ongoing operations performed for that insured; or
- facilities used by you;
and then only for the limits of liability specified in such contract, but in no event for limits of liability in excess of the applicable limits of this policy.
However, such person, organization, trustee, estate or governmental entity shall be an insured only with respect to occurrences taking place after such written contract has been executed or such permit has been issued.
All other Terms and Conditions of this Insurance remain unchanged.
Insurers have frequently asserted that both of these endorsements provide coverage only for ongoing operations. Insurers rely on these endorsements to deny coverage for completed work. However, most courts interpreting the phrase "ongoing operations" have rejected this limitation on coverage. Interestingly, courts that don't interpret "ongoing operations" have limited coverage on this basis. See Pro Con Construction, Inc. v. Arcadia Ins., 794 A.2d 108 (N.H. 2002) (finding that the named insured's ongoing operations to be painting and that the injuries alleged were not connected to painting operations so there was no coverage for the additional insured). See also Fleniken v. Entergy Corp., 790 So. 2d 64 (La. App. 2001) (noting that the injury occurred while the named insured was performing its operations).
In Pardee Construction v. Insurance Co. of the West, 92 Cal. Rptr. 2d 443 (Cal. App. 2000), the court explained that the revision of the endorsement to specifically include "ongoing operations" "effectively precludes application of the endorsement's coverage to completed operations losses." Pardee at 456.
The plaintiff homeowner's association sued Pardee for construction defects in a multiphase residential project. Pardee tendered its defense, as an additional insured, to the four insurers that issued policies to the four subcontractors whose work was allegedly defective. Each insurer either denied or failed to acknowledge any responsibility to Pardee. The trial court granted summary judgment in favor of the insurers, reasoning that "the policies did not incept until after construction of the project was complete and thus were not issued to provide Pardee coverage as to it." Pardee at 448.
In finding that three of the four insurers' policies required a defense of Pardee, the appellate court considered the language of the additional insured provisions and found that "the unambiguous language of the policies and endorsements provides Pardee with coverage for the completed operations of the named insured subcontractors." Id. at 454. The court explained that there was no language in the endorsements "expressly limiting the time frame of the additional insured coverage to the time of the ongoing operations of the named insured." Id. (citation omitted).
The court then explained how the insurers could have used language to exclude coverage for the subcontractor's completed operations. The court first cited the evolution of the Insurance Services Office, Inc. (ISO), additional insured form, suggesting that the insurers could have used a form employed since the mid 1980s that explicitly excluded coverage for completed operations. Next, the court cited the 1993 ISO form, with its revisions to "expressly restrict coverage for an additional insured to the 'ongoing operations' of the named insured." Pardee at 456. In explaining the change, commentators noted that "it was never the intention of insurers to provide additional insureds with completed operations coverage" and the prior language inadvertently accomplished that result. Id. at 456, n.16.
Citing industry commentators, the court noted that "these endorsements provide coverage only with respect to 'your ongoing operations,' which effectively eliminates coverage for completed operations" and the failure to include this, or any, limiting language manifested the insurers intent not to exclude coverage to Pardee for completed operations. Id.
Pardee clearly explained the effect of the revised form and how the use of "ongoing operations" was intended to restrict coverage to "work in progress only" so that "when the named insured's operations for the additional insured are no longer 'ongoing,' the additional insured no longer has coverage." Pardee at 456, n.16. Despite this, other courts considering this language in practice have found coverage for completed work.
In Valley Insurance v. Wellington Cheswick, LLC, 2006 WL 3030282 (W.D. Wash. 2006), a condominium association sued the owner, developer, and general contractor, alleging construction defects. The construction contract required that the subcontractors name the owner, developer, and general contractor as an additional insured under the subcontractors' general liability policies. Pursuant to the additional insured endorsements, the owner, developer, and general contractor sought a defense and indemnification from the subcontractors' general liability insurers.
Two of the subcontractor policies contained additional insured endorsements that limited coverage to claims arising out of the named insured subcontractor's ongoing operations. These insurers declined coverage because the defects alleged by the association occurred after the work had been completed. The insurers argued that the purpose of the "ongoing operations" language "was to limit additional insured coverage to losses that occurred while the contractor was onsite or while work was actually in progress." Wellington at 5.
In considering that argument, the court explained that the underlying complaint alleged that the owner, developer, and general contractor were liable for damages resulting from improper construction by the subcontractors. The court noted that the phrase "ongoing operations" was not defined in the policies at issue. The court then looked to the dictionary for the common and ordinary meaning. Citing the Merriam-Webster online dictionary, the court found that "ongoing" was defined as "being actually in process" and "operations" was defined to mean the "performance of a practical work or of something involving the practical application of principles or processes." Id. (citation omitted).
After reviewing these definitions, the court determined that the "the common and ordinary meaning of this phrase is simply those things that the company does." Wellington at 5 (citing Marathon Ashland Pipe v. Maryland Cas., 243 F.3d 1232, 1238 (10th Cir. 2001)). The defendants' liability for the property damage "arises from the ongoing operations performed by the subcontractors. While the property damage may not have occurred during those ongoing operations, the alleged liability did." Id. Thus, the court held that the owner, developer, and general contractor were additional insureds under the policies at issue.
Similarly, in Wausau Underwriters Ins. v. Cincinnati Ins., 2006 WL 2990205 (2nd Cir. 2006), Cincinnati argued that "ongoing operations" "'connoted actions currently in progress' such as 'active work,'" Wausau at 1 (emphasis in original). Cincinnati argued that because the subcontractor was no longer providing the contracted-for plowing and salting work, that the claim (a slip and fall in the additional insured's parking lot) did not arise out of the named insured's ongoing operations. The court rejected this argument, stating that "New York courts have not adopted such a narrow definition of 'ongoing operations.'" Id.
Wellington and Wausau's determination that an additional insured endorsement provides coverage for "ongoing operations," even if the work out of which the liability arises had been completed, ignores the definition of "ongoing" and improperly relied on the Marathon court's construction of the definition.
Marathon did not address whether the phrase "ongoing operations" addressed ongoing or completed operations. The issue in Marathon was simply whether the phrase "ongoing operations" encompassed the type of operations being performed by the named insured at the time of the events giving rise to Marathon's liability.
Marathon was sued by a temporary employee hired by SSI, Marathon's building erection subcontractor. In its 30-year relationship with SSI for building erection, Marathon had regularly asked SSI to hire temporary employees to be supervised by Marathon. SSI had a policy of general liability insurance with Maryland Casualty and, as required by its service contract, included Marathon as an additional insured under its general liability policy. Marathon sought coverage under SSI's Maryland Casualty policy for the temporary employee's claim.
Maryland Casualty argued that the phrase "your ongoing operations," contained in the additional insured endorsement, was limited to building erection work as referenced in the endorsement's schedule. Maryland argued that because the temporary employee was not injured during SSI's performance of building erection, but rather while SSI was providing the services of the employee unrelated to building erection, that Marathon was not an additional insured. Because "ongoing operations" was not defined in the policy, the court looked to the dictionary to determine the plain and ordinary meaning of the term.
The court explained that "[t]he common and ordinary meaning of this phrase is that a company's 'ongoing operation' is simply those things that the company does, as opposed to the meaning suggested by Maryland Casualty which would limit 'ongoing operations' to mean only the core or most prominent operations that a company might undertake." Marathon at 1238. In finding coverage, the court noted that the "occasional nature of [SSI's hiring] activity does not negate the fact that it was an 'ongoing operation' for SSI." Id. The court concluded that "at the very least, this limitation is ambiguous as to whether the parties intended to cover the risks associated with SSI's activities in this regard and therefore must be read in favor of the insured." Id. at 1239.
Similarly, in Wausau, the Second Circuit relied on a prior New York Appellate Division decision which focused on the scope, not the timing, of the contractor's work. The earlier case held that a pipe rupture resulting in a scalding injury arose out of the contractor's "ongoing operations" even though the contractor was not actively testing or installing a valve at the time of the incident because "'[u]nder any plain meaning of the word, the contractor's work was 'ongoing' as long as the tests designed to assure proper performance remained undone'." Wausau at 1 (citing Perez v. New York City Housing Auth., 754 N.Y.S.2d 635, 636 (N.Y. App. Div. 2003)).
Courts frequently broadly construe the scope of additional insured endorsements. Insurers relying on a distinction between completed operations and "ongoing operations" in their GL policies should exercise caution when applying their understanding of the meaning of those phrases to additional insured endorsements that contain those phrases. Despite the apparently clear limitation of the phrase "ongoing operations," some courts have broadly construed additional insured endorsements containing that term to include both "ongoing operations" and completed operations.
Contributing author Rebecca C. Appelbaum is a senior associate with Butler Pappas Weihmuller Katz Craig, LLP, practicing in the area of third-party coverage.
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