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.