The Fifth Circuit held there was no duty to defend an additional insured for alleged negligence after completion of the project. Woodward v. Acceptance Indemn. Ins. Co., 2014 U.S. App. LEXIS 2569 (5th Cir. Feb. 11, 2014).
Pass Marianne, L.L.C. contracted for the construction of condominiums. The general contractor was Woodward. DCM Corporation, L.L.C. was a subcontractor for the concrete work. DCM worked on the project from January to October 2006. The entire project was completed in August 2007. Pass Marianne sold the condominiums to Lemon Drop Properties in October 2007.
Lemon Drop sued Pass Marianne and Woodward a year after purchasing the condominium. Pass Marianne filed a cross-claim against Woodward alleging faulty construction and damage arising out of the construction. The claims were arbitrated. A significant issue in the arbitration was the fault of the concrete subcontractor, DCM.
DCM obtained a CGL policy from Acceptance. Woodward was an additional insured under the policy. Acceptance refused to defend Woodward in the arbitration. The policy limited coverage for additional insureds to "liability arising out of your [DCM's] ongoing operations performed for that insured," i.e.,Woodward. Further, an exclusion in the policy precluded coverage for "all work . . . on the project . . . to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed."
Suit was filed. The district court held Acceptance had a duty to defend Woodward.
The Fifth Circuit reversed.The allegations against Woodward were: (1) failing to build the foundation piers in conformity with the plans and altering the blueprints to cover up the problem; and (2) intentionally and willfully violating its contractual obligations to Pass Marianne in multiple cost cutting and gouging ploys.
The additional insured endorsement excluded property damage occurring after all work was completed. Claims for liability could be brought after ongoing operations were complete, but the underlying liability could not be due to the "completed operations."
The central issue was whether Woodward's liability arose out of DCM's ongoing operations or its completed operations. This determination was governed by the facts alleged in the cross-claims. Pass Marinne's claims for fraud, defamation, and breach of contract did not arise out of DCM's ongoing operations of work for the condominiums. The allegations were that the completed building did not satisfy the terms of the parties' contract. Accordingly, even if Woodward's liability for Pass Marianne's breach of contract claim was related to DCM's concrete work, Woodward's liability did not arise out of DCM's ongoing operations. The breach arose from the completed construction, which was the point in time when Pass Marianne received the completed building.
A causal relation was required between Woodward's liability for the alleged damage and DCM's operations. But the policy specifically excluded liability for property damage occurring after all work had been completed. The damage alleged here arose from completed operations.
