Although the homeowners did not own their homes when the subcontractors completed their work, the general contractor was still covered as an additional insured for the homeowners' suits based on the ongoing operations endorsement in the subcontractors' policies. McMillin Mgmt. Servs. v. Fin. Pac. Ins. Co., 2017 Cal. App. LEXIS 1000 (Cal. Ct. App. Nov. 14, 2017).
McMillin was the developer and general contractor for the project. Among the subcontractors were Martinez Construction Concrete Contractor, Inc. and Rozema Corporation. Martinez performed concrete flatwork between 2003 and November 2005. Rozema performed lath and stucco work between March 2003 and October 2005.
Lexington issued CGL policies to Martinez and Rozema. McMillin was an additional insured under both policies, "but only with respect to liability arising out of your [i.e., Martinez's or Rozema's] ongoing operations performed for [McMillin]." An exclusion provided that the insurance did not apply to property damage occurring after the insured subcontractor had completed operations on behalf of the additional insured.
McMillin completed construction of the homes in June 2005. In June 2010, several homeowners sued McMillin, alleging defective conditions in their homes arising out of the construction. McMillin tendered its defense to Lexington, who refused to defend. McMillin sued for declaratory relief. Lexington successfully moved for summary judgment. Because there were no homeowners in existence until after the subcontractors' work was completed, any potential liability to the homeowners arising out of the subcontractors' work must have arisen out of the subcontractor's completed operations.
On appeal, the appellate court reversed. Even if McMillin did not face any liability to homeowners during the subcontractors' ongoing operations, the endorsement did not state that Lexington would provide coverage solely for liability occurring during the subcontractors' ongoing operations performed for McMillin. Rather, the endorsements stated that Lexington would provide coverage to McMillin for liability "arising out of" such ongoing operations. The term "arising out of" was not synonymous with "during." Instead, the phrase "arising out of" was given a broad interpretation in the context of additional insured endorsements. The fact that there were no homeowners at the time of Martinez's and Rozema's ongoing operations did not establish that McMillin could suffer no liability arising out of such ongoing operations.
The court did not decide whether an ongoing operations additional insured endorsement provided coverage to the additional insured only for damages that occurred before the completion of the name insured's ongoing operations. Rather, the court only needed to decide whether Lexington and the trial court were correct that the nonexistence of homeowners at the time Martinez and Rozema ceased ongoing operations established as a matter of law the lack of potential for coverage for McMillin under the policies.