CGL policies generally cover “property damage” brought about by an insured’s “operations in progress.” This grant of coverage extends to the insured’s subcontractors. Thus, contractors are usually covered for “property damage” occurring at the project, whether caused by their own work or the work of their independent contractors acting on their behalf.
As an additional coverage, a CGL policy will cover property damage arising out of the insured’s completed work. An example of this situation is when a contractor is sued for property damage caused by his completed work (e.g., his patio cover collapsed and damaged the outdoor kitchen). As a result of construction contract requirements, insureds often procure “additional insured endorsements” (“AIEs”) to cover the liability of the contractor who retained them. Subject to policy language, an additional insured is entitled to same benefits as a named insured, including the right to be defended and indemnified. Presley Homes, Inc. v. American States Ins. Co., 90 Cal. App. 4th 571, 575 (Cal. Ct. App. 4th 2001).
A fundamental purpose of AIEs is to provide coverage for claims against the additional insured based on vicarious liability for the named insured’s negligence. So, additional insured coverage would likely apply to a situation in which the general contractor was being sued for his subcontractor’s alleged defective work. However, some AIEs afford the additional insured coverage for its own negligence. To determine whether or not an additional insured has direct liability coverage, claims professionals must carefully examine the policy and the applicable AIE. Frequently issued endorsements provide coverage of the additional insured for liability “arising out of” the named insured’s work for the additional insured. In Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal. App. 4th 321, 330 (Cal. Ct. App. 2d 1999), the Court construed this language broadly and held that the additional insured was covered for both his vicarious and direct liability arising out of the work.
Other AIE coverages include the named insured’s liability to the additional insured arising out of its “ongoing operations” performed for the additional insured. See St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co., 101 Cal. App. 4th 1038, 1059 (Cal. Ct. App. 2d 2002). In recent years, a question has arisen concerning what “ongoing operations” means in this context. Is the coverage only available for claims arising during the named insured’s operations? Could coverage be present when the insured’s operations are no longer “ongoing,” but the damage arose out of the operations when they were? The Court, in Jaynes Corp. v. American Safety Indem. Co., 2012 WL 6720606 (D. Nev. 2012), came to the conclusion that “ongoing operations” in this context should be construed broadly. It decided that “the ‘ongoing operations’ provision does not restrict coverage to property damage that occurred during the ongoing operations, but also covers claims for damage that occurred after the operation but was caused by ongoing operations.” Is this a fair interpretation of “ongoing operations”?
“Ongoing operations” AIE coverage should extend to cover subcontractor’s negligence during the operations regardless of whether the damage arose during the operations or after. The AIE in this context usually invokes the “arising out of” phrasing. Courts have consistently held that this language affords the insureds broad coverage. Thus, inclusively interpreting this type of AIE compels the conclusion that the additional insured coverage should extend to damage caused by “ongoing operations” without regard to when the damage occurs.
Additionally, limiting the additional insured’s coverage to damage arising during the subcontractor’s ongoing operations, but not damage occurring after the subcontractor’s operations but arising from them, is hyper technical and inconsistent with the insureds’ reasonable expectations.
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