The court's finding is rooted in its interpretation of the
definition of the "products-completed operations hazard" in the
CGL policy. Specifically, the court considered the definition of
"the products-completed operations hazard" found in the CGL
policy, first acknowledging that for the products-completed
operations hazard to apply, products must have left the
insured's possession or the work must have been completed. The
court then focused on what is not
within the products-completed operations hazard of the CGL—any
classification shown on the
declarations that states
that the products-completed operations are included.
Classification Description
Certain CGL classifications have only an incidental products
or completed operations exposure. An example is a Girl Scout
council. The Insurance Services Office, Inc. (ISO),
Commercial Lines Manual uses
the following classification description for a Girl Scout
council.
41001 Boy or Girl Scout Councils
Class Code: 41001
Premium Base: Products/Completed Operations are included
The phrase "Products/Completed Operations are Included" is
precisely what is being referenced in the definition of the
products-completed operations hazard. If the Girl Scout council
has a products exposure, that products exposure will not be
considered within the products-completed operations hazard
definition.
Products/Completed Operations Are Included
The CGL coverage implications to a person or organization
whose ISO classification states products-completed operations
are included may be illustrated by an example. The local Girl
Scout council is sued for bodily injury suffered by a person who
allegedly became seriously ill after consuming Girl Scout
cookies sold by that council. Based on a standard CGL policy,
the insurer will defend the complaint and pay damages on behalf
of the Girl Scout council if it is found legally liable for the
bodily injury.
In other words, the classification description does not
eliminate coverage—the insurer will still defend and pay as it
would any other covered claim—but the claim will
not be considered a products
claim, as the classification description has
specifically removed any
products or completed operations claim from the
products-completed operations hazard.
The consequence of the classification description
"products-completed operations included" for the Girl Scout
council is that the CGL policy's general aggregate limit will
apply to a claim that would otherwise fall within the
products-completed operations aggregate limit. Therefore, the
Girl Scout council has the benefit of only one aggregate limit
(the general aggregate limit) and not two aggregate limits (the
general aggregate limit and the products-completed operations
aggregate limit).
In fact, the insurer for the Girl Scout council will not
enter any dollar limit on the declarations page in the space
designated for the products-completed operations aggregate
limit. Instead, the insurer would enter "included" or similar
wording where a dollar limit is usually inserted.
Back to Owners Ins. Co. v. Jim Carr
Homebuilders
The court's interpretation of the CGL's definition of the
"products-completed operations hazard" was curious to say the
least. In its coverage analysis, the court did not review the
classification description
provided on the declarations page to see if the classification
specifically stated that the products-completed operation was
included (as it was in the classification description used in
the Girl Scout council example). The court instead looked at the
declarations page to find whether the CGL policy provided
any coverage for products
and completed operations.
This approach to coverage analysis appears in part to be
based on the court's mistaken observation that completed
operations coverage was "supplemental coverage" and is "not
insured against by the standard CGL policy."1
As a limit was listed on the CGL policy declarations under the
"Products-Completed Operations Aggregate" heading, the court
correctly concluded that the policyholder had purchased products
and completed operations coverage.
Merely by the fact the CGL policy included products and
completed operations coverage on the declarations page, the
court assumed, rather surprisingly and without explanation, that
the completed operations claim that was the basis of the
coverage dispute fell outside
of the CGL definition of the "products-completed operations
hazard." Apparently, the court gave no effect to the beginning
of the phrase "… for which the classification shown on the
declarations …" but focused solely on the last part of the
phrase: "… the Declarations, states that the products-completed
operations are included." In the court's view, if the
declarations stated that products-completed operations coverage
was included—as evidenced by insertion of a limit for the
products-completed operations aggregate limit—any completed
operations claims could not
be within the products-completed operations hazard definition of
the CGL policy.
As the "your work" exclusion applied only to work in the
"products-completed operations hazard," and the claim in dispute
did not, in the court's view, fall within the products-completed
operations hazard, exclusion l., "your work," did not apply. The
court found, "If the declarations show coverage for
'products-completed operations,' then the 'your work' exclusion
does not apply."
Conclusion
While the concept of products-completed operations coverage
can be a confusing one, the problems with the court's
interpretation are apparent. According to the court's holdings, the
"your work" exclusion (exclusion l.) does not apply to any CGL
policy when that CGL includes products-completed operations
coverage. It follows, then, that the only time the "your work"
exclusion could apply is when the CGL does
not include any coverage for products and completed
operations.
Of course, if a CGL does not
provide any products and completed operations coverage, the
"your work" exclusion would not apply because no bodily injury
and property damage that falls within the products-completed
operations hazard is covered in the first instance. There would
be no need to exclude certain types
of completed operations property damage claims if
all property damage claims
for products and completed operations are already excluded.
By the court's reasoning, the inevitable conclusion is that
the
"your work" exclusion in the CGL policy would
never apply under any
circumstances. The court's holding renders the "your work"
exclusion utterly meaningless.
If full effect had been given to the entire definition of the
products-completed operations hazard, the
classification description
found in the declarations would have been the court's focus—not
whether the CGL declarations showed that products and completed
coverage had been purchased. In this case, the CGL policy
included the following classification descriptions on the
declarations.
Classification
Code 91580 Contractors—Executive Supervisors or Executive
Superintendents
Code 91583 Contractors-Subcontracted Work—In Connection with
Building Construction, Reconstruction, Repair or Erection of One
or Two Family Dwellings
It is quite evident that the classification descriptions on
the declarations did not state "Products/completed operations
are included." Therefore, the completed operations claim in
dispute did indeed fall within the products-completed operations
hazard and was therefore subject to exclusion l., "Damage to
Your Work."
1The court stated in a footnote,
"The standard CGL policy referred to in this opinion is the
standardized form used in the construction industry and tracks
the language of the 1986 revisions by the Insurance Services
Office, Inc."
Craig F. Stanovich,
CPCU, CIC, CRM, AU, is cofounder and principal of
Austin
& Stanovich Risk Managers LLC, a risk management and insurance
advisory consulting firm specializing in all aspects of commercial
insurance and risk management, providing risk management and insurance
solutions, not insurance sales. Services include fee-based "rent-a-risk
manager" outsourcing, expert witness and litigation support, and
technical/educational support to insurance companies, agents, and
brokers. E-mail at