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.
SeeAndrew 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.
"Ongoing Operations" Language
The following are two examples of "ongoing operations" additional
insured endorsements.
Example 1
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.
Example 2
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. SeePro
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).
"Ongoing Operations" Language Eliminates Coverage for Completed
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.
"Ongoing Operations" Is Not Limited to Work in Progress
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.
Analysis
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)).
Conclusion
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.