Insurance Law Hawaii

Insurer's Attempt to Strike Experts in Collapse Case Fails

    The insurer's efforts to exclude two of the insured's experts in a collapse case were unsuccessful. Hudon Specialty Ins. Co. v. Talex Enterprises, LLC, 2019 U.S. Dist. LEXIS 150148 (S.D. Miss. Sept. 4, 2019).

    The insureds' building collapsed. The remaining portions of the building required immediate stabilization. The insureds hired Mr. Laird, an engineer, to prevent further property destruction. The insured designated Mr. Laird as a non-retained expert for trial. Mr. Laird's report claimed that the collapse was caused because the building had been re-roofed many times without removal of the degraded underlying roofing materials, thereby adding additional weight to the roof structure. 

    The insureds also designated Steve Cox as a non-retained expert. Mr. Cox was an architect who owned property neighboring the building that collapsed. He opined that the building collapsed because of the condition of very old mortar and not because of water standing on the building roof or because of roof repairs. 

    Hudson sought to strike these two experts because their opinions were inconsistent with the admitted facts. A document produced by the insureds stated that a large amount of rainwater had collected on the roof and the weight of the rainfall was the proximate cause of the collapse. Hudson claimed that this statement qualified as a judicial admission, removing the question of causation from contention. The court disagreed that the statement was a judicial admission because it did not form any part of the pleadings. The statement may have been an evidentiary admission that could be controverted or explained by the parties. 

    Hudson also argued that neither expert testified that the mortar decay which alleged caused the collapse was not plainly visible. Therefore, the testimony could not be relevant because the building decay had to hidden from view to trigger the policy. But the determination of whether the policy was triggered would be based on testimony and cross-examination.

    Hudson also sought to strike Mr. Laird because he had been retained to insist the insureds to preserve the property before suit was ever filed. The mere fact that he was retained to provide expert testimony did not make him a "specially employed expert" who was solely retained to provide testimony at trial and was not involved in other ways in the case. Mr. Laird would testify as to the opinion he formed during his employment by the insureds as he worked to stabilize the building. Therefore, he was correctly designated as a non-retained expert.

    Therefore, the expert opinions put forth by the insureds satisfied the Daubert standard and were both relevant and reliable. 

Insurer Must Defend Additional Insured Though Its Insured is a Non-Party

    The plaintiff insurer's motion for partial summary judgment seeking an order that defendant insurer was obligated to defend a non-party as an additional insured was granted. Am Empire Surplus Lines Ins. Co. v. Burlington Ins. Co., 2019 N. Y. Misc. LEXIS 4145 (N. Y. Sup. Ct. July 25, 2019). 

    Quality Building Construction, LLC was the contractor hired to work on exterior facade of a building owned by Central Park West Corporation. The underlying complaint alleged that Quality caused plastic spacers and pedestals used for the penthouse terrace to fall down the roof drain riser. A clog and rainwater backup resulted in water damage to apartment 8A. The resulting damage was allegedly due to the clogged roof drain riser.

    Quality subcontracted the work to Mega State, Inc. The subcontract required Mega to indemnify and hold Quality harmless against claims in connection with Mega's work, as well as name Quality as an additional insured on a primary, non-contributory bases under Mega's CGL policy. Burlington issued a policy to Mega naming Quality as an additional insured. American Empire issued a CGL policy to Quality.

   Quality was sued in the underlying action, but Mega was not.  American Empire tendered a demand for coverage to Mega and Burlington, relying on the agreement between Quality and Mega. Burlington responded that Mega was not liable for the alleged damages. American Empire sued Burlington. Subsequently, Burlington accepted the tender to defend Quality in the underlying action, and reserved rights as to whether Burlington's policy was primary and on the question of indemnification. American Empire agreed to withdraw its suit if Burlington would modify its reservation of rights. Burlington refused.  

    Mega completed its work prior to the date of loss. American Empire contended that Quality was an additional insured and entitled to coverage under the "Completed Operations Endorsement" in the Burlington policy. American Empire argued that additional insured coverage was triggered because there was at least a reasonable possibility that the named insured, Mega, was a proximate cause of the underlying property damage. Further, coverage to Quality as an additional insured under the Burlington policy was primary and non-contributory. 

    Burlington argued the underlying allegations precluded the possibility of coverage. The underlying complaint stated that the property damage was caused by Quality, and there could be no determination that Mega caused the property damage. There was no proof or allegation that Mega was negligent and Mega was not a party to the underlying action. The only evidence that Mega's work caused the damage was an affidavit from Quality's President swearing that Quality did not perform work because it subcontracted the work to Mega. Burlington challenged this affidavit as self-serving and inadmissible on the cross motions for summary judgment. 

    The court ruled that it was irrelevant that Mega was not mentioned in the underlying complaint. Burlington had the subcontract between Mega and Quality, so it had actual knowledge of facts establishing a reasonable possibility that the complaint was within its indemnification policy terms and that its coverage was primary and non-contributory. Burlington was liable to reimburse American Empire for defense costs, with interest because of the language of the policies and the sub contract between Quality and Mega. 

Care, Custody and Control Exclusion Does Not Bar Coverage For Alleged Construction Defects

    Reversing the lower court, the California Court of Appeal found that the care, custody and control exclusion was not applicable to bar coverage for the general contractor as the additional insured under the subcontractor's policy. McMillin Homes Constr. v. Nat'l Fire & Marine Ins. Co., 2019 Cal. App. LEXIS 514 (Cal. Ct. App. June 5, 2019).

    McMillian was the developer and general contractor on the housing project. It hired Martin Roofing Company, Inc. to do the roofing job for the project. Martin secured a general liability policy from National Fire that named McMillian as an additional insured. By endorsement, the policy excluded coverage for damage to property in McMillin's "care, custody, or control" (CCC exclusion).

    In 2014, homeowners sued McMillin for construction defects. The complaint alleged water intrusion and damage caused by roofing defects. McMillin tendered its defense to National Fire. Coverage was refused. Suit was filed and the trial court entered judgment in favor of National Fire. 

    The Court of Appeal reversed. The policy provided coverage to McMillin as an "additional insured" with respect to liability arising out of:

A. Martin's ongoing operations performed for McMillin and

B. Acts or omissions of McMillin in connection with its general supervision of such operations.

    National Fire argued that the CCC exclusion in the additional insured endorsement barred coverage. The endorsement did not cover:

Property damage to Property in the care, custody, or control of the additional insured(s) or over which the additional insured(s) are for any purpose exercising physical control.

Because McMillin was the general contractor on the project, any damage alleged while the homes were being built would have been to property in McMillin's care, custody, or control. McMillin contended that the CCC exception applied only where the insured had exclusive or complete control over the damaged property. 

    The CCC exclusion had been judicially construed to require exclusive or complete control.  Therefore, the provision was not ambiguous. Here, Martin agreed to furnish all labor, materials, and equipment needed to do the roof job. It was primarily and directly responsible for the activities and conduct of its employees. All materials, equipment and tools remained Martins property until they were integrated into the structure and approved by McMillin. Martin and McMillin shared control over Martins roofing work. Accordingly, National Fire did not prove the CCC exclusion rendered coverage for the claims was an impossibility. 

    Therefore, National Fire owed a defense and the judgment was reversed. 

Non-compliance With Endorsement Means No Indemnity Coverage

    The insured's failure to verify that subcontractors had CGL policies and to provide a contract stating that the subcontractors would indemnify the insured as required by the policy's endorsement meant there was no coverage for the insured. Cincinnati Spec. Underwriters Ins. Co. v. Milionis Constr., Inc., 2018 U.S. Dist. LEXIS 199658 (E.D. Wash. Nov. 26, 2018). 

    The homeowners filed suit against Milionis, the general contractor for construction of a home. The underlying suit alleged that Milionis breached the parties' agreement by leaving the home unfinished. Cincinnati defended Milionis under a reservation of rights.

    Cincinnati filed for a declaratory judgment while the underlying action was still pending, seeking a declaration that it had no duty to defend or indemnify Milionis. Cincinnati's initial motion for summary judgment arguing that it had no duty to defend was rejected by the court. In a renewed motion after the underlying action was concluded, ?Cincinnati sought a determination that there was no duty to indemnify. 

    The policy issued by Cincinnati had an endorsement requiring Milionis to: (1) obtain a formal written contract with subcontractors verifying that they had valid CGL insurance; (2) obtain a formal written contract stating that the subcontractors agreed "to defend, indemnify and hold Milionis harmless from any and all liability;" and (3) verify in the contract that the subcontractors had named Milionis as an additional insured on their CGL policy. 

    On the construction project, Milionis had subcontractors perform all the work. Milionis never sent Cincinnati any subcontractor contracts or proof of Milionis's additional insured status as required by the endorsement. 

    The underlying facts established that there was an occurrence and property damage. But Milionis did not dispute that it did not meet the conditions precedent to coverage - obtaining subcontractor contracts and being named as an additional insured on the subcontractors' liability policies. This was prejudicial to Cincinnati. Milionis's noncompliance with the endorsement left it with no contractual indemnification claims that it would have asserted to compel the subcontractors to contribute to the Milionis's defense or settlement. Moreover, it deprived Milionis of the ability to have direct contractual rights to a defense and coverage from the subcontractors' insurers. Consequently, Cincinnati was left with no other insurers and parties to share in the costs of defending and indemnifying Milionis. 

    Cincinnati was therefore relieved of its duty to indemnify under the policy. 

Certified Question Asks Washington Supreme Court Whether Insurer is Bound by Contradictory Certificate of Insurance

    The Ninth Circuit certified a question to the Washington  Supreme Court as follows:

Under Washington law, is an insurer bound by representations made by its authorized agent in a certificate of insurance with respect to a party's status as an additional insured under a policy issued by the insurer, when the certificate includes language disclaiming its authority and ability to expand coverage?

T-Mobile USA Inc. v. Selective Ins. Co lf Am., 2018 U.S. App. LEXIS 31863 (9th Cir. Nov. 9, 2018). 

    In 2010, T-Mobile entered into a Field Services Agreement (FSA) with Innovative Engineering, Inc. under which Innovative would provide services in connection with the construction of rooftop cellular antennae towers in New York City. The FSA required Innovative to maintain general liability insurance naming T-Mobile as an additional insured, and required that Innovative provide T-Mobile with certificates of insurance documenting the coverage. Innovative obtained coverage from Selective Insurance Company of America. 

    The policy contained an Additional Insured (AI) Endorsement that extended "additional insured" status to any entity with whom Innovative entered into a written contract requiring Innovative to add that entity as an additional insured. In 2012, Selective's authorized agent and insurance broker, the Van Dyke Group, Inc. (VDG) issued a Certificate of Insurance (COI) to T-Mobile. The COI stated that T-Mobile, as the certificate holder, "is included as an additional insured" under the Policy. But it also stated that the COI "is issued as a matter of information only and confers no rights upon the certificate holder," "does not affirmatively or negatively amend, extend or alter the coverage afforded by" the Policy, and "does not constitute a contract between the issuing insurer 's authorized representative or producer and the certificate holder." The COI further warned that "if the certificate holder is an Additional Insured, the policy must be endorsed." This was apparently never done.

    In 2009, the owner of the building on which the cell towers were placed informed T-Mobile and Innovative of alleged property damage that resulted from Innovative's earlier work on the rooftop. Innovative and T-Mobile tendered claims to Selective. In April 2013, the building owner sued T-Mobile and Innovative. 

    Selective agreed to defend Innovative, but denied the tender from T-Mobile because T-Mobile did not appear in the Selective policy named as an insured and did not qualify as an additional insured.

    T-Mobile filed suit and sought partial summary judgment, arguing that the 2012 COI issued by Selective's authorized agent stated that T-Mobile was an additional insured. The district court denied T-Mobile's motion and granted Selective's cross-motion for summary judgment.

    On appeal, the Ninth Circuit noted there were two competing principles under Washington insurance law presented by the case. First, under Washington law, an insurer was bound by all acts of its agent which were within the scope of the agent's real or apparent authority. Second, under Washington law, the purpose of issuing a COI was to inform the recipient that insurance had been obtained. 

    Washington law was therefore conflicted on whether Selective was bound by VDG's representation in the 2012 COI that T-Mobile was an additional insured under the Policy. The Ninth Circuit concluded hat the proper course of action was to certify the issue to the Washington Supreme Court. 

    

Defense Owed To Additional Insured General Contractor

    The Illinois Court of Appeals reversed summary judgment entered for the insurer and found the general contractor, an additional insured under the policy, was entitled to a defense. Hastings Mut. Ins. Co. v. Blinderman Constr. Co., Inc., 2017 Ill. App. LEXIS 661 (Ill. Ct. App. Oct. 24, 2017).

    Blinderman was the general contractor on a construction project for an elementary school. Blinderman hired JM Polcurr, Inc. to do the electrical work on the project. By contract, Polcurr was obligated to purchase a policy naming Blinderman as an additional insured for Polcurr's work on the project. Polcurr purchased the policy.

    Polcurr's employee, Robert Woods, suffered a serious injury at work on the project. A court appointed Wood's daughter to serve as guardian for Woods and his estate.

    The Estate of Woods sued Blinderman, alleging that Woods fell from a ladder while working for Polcurr. The complaint alleged that Blinderman failed to provide a safe platform for the work and failed to properly supervise the work. Blinderman tendered the defense to Polcurr's insurer, Hastings Mutual Insurance Company. Hastings rejected the tender based upon the following language in its policy:

 With respect to the insurance afforded to these additional insureds, the following exclusions apply:

. . . 

Liability arising out of the sole negligence of the additional insured or by those acting on behalf of the additional insured.

    Blinderman filed a third-party complaint against Polcurr, arguing that Polcurr should pay a share of any liability assessed against Blinderman because Polcurr failed to inspect the premises, improperly maintained Woods' work area, failed to warn Woods of dangerous conditions, and permitted Woods to use an unstable ladder without appropriate safety equipment. 

    Hastings then filed suit seeking a declaration that it had no duty to defend or indemnify Blinderman for its potential liability in the underlying case. Blinderman and Hastings both filed motions for summary judgment.

    Blinderman supported its motion with its third-party complaint against Polcurr and depositions of two Polcurr employees. The employees testified that Blinderman gave no directions to Polcurr employee about their work. Polcurr employees, including Woods, used only Polcurr equipment. 

    Nevertheless, the trial court held it could not consider the allegations of the third-party complaint when determining whether Hastings had a duty to defend Blinderman. The court further held that the exclusion for liability arising from Blinderman's sole negligence applied, and Hastings had no duty to defend Blinderman because the underlying complaint did not allege that Polcurr acted negligently. Blinderman appealed. 

    The appellate court noted that Hastings had the burden of showing that Blinderman's liability arose out of the sole negligence of Blinderman or those acting on Blinderman's behalf and not from the negligent acts or omissions of Polcurr. 

    In the underlying case, the Estate of Woods did not specifically allege that Polcurr's acts or omissions cuased the injury. But the estate did not expect to recover damages from Polcurr and had no reason to include allegations about the acts or omissions of Polcurr. The complaint's silence concerning Polcurr's acts or omissions did not suffice to meet Hastings' burden of showing the Polcurr's acts or omissions did not contribute to causing the injury. 

    Further, Blinderman's third-party complaint aginst Polcurr included allegations consistent with the Estate's complaint, showing how Polcurr's acts or omissions might have contributed to causing Woods' injury. However, Blinderman would need to rely on those pleadings only if it bore the burden of proving that Polcurr's acts or omissions might have contributed to causing Woods' injury. Because the Estate's complaint included no allegations about Polcurr's acts or omissions, Hastings did not meet its burden of proving that Blinderman's liability in the underlying case arose out of Blinderman's sole negligence. 

    The summary judgment entered on behalf of Hastings was reversed. 

 

Additional Insured Not Entitled to Cumis Counsel When Pursuing Cross-Claim Against Insurer

   The insured contractor was not entitled to independent Cumis counsel despite suing the insurer in a cross-claim. Centex Homes v. St. Palu Fire & Marine Ins. Co., 2018 Cal. App. LEXIS 45 (Cal. Ct. App. Jan. 22, 2018).

     Homeowners sued Centex Homes for construction defects. Centex tendered defense of the suit to St. Paul, the insurer for one of the subcontractors who included Centex as an additional insured under its policy. St. Paul agreed to defend under a reservation of rights. St. Paul reserved the right to deny indemnity for any claims by the homeowners not covered by the policy. St. Paul also reserved its right to reimbursement of costs incurred defending uncovered claims. St. Paul appointed attorney David Lee to represent Centex and defend against the homeowners' claims. 

    Centex filed a cross-complaint against subcontractors alleging breaches of written, oral and implied contracts to indemnify defend and obtain insurance. The cross-complaint included a seventh cause of action for declaratory relief against St. Paul, seeking a declaration that Centex was entitled to independent counsel under Cumis and California statute because St. Paul's reservation of rights created conflicts of interest.

    St. Paul moved for summary judgment on the seventh cause of action. St. Paul introduced evidence that Lee only represented Centex with respect to its defense of the complaint and did not represent Centex, its insured subcontractor, nor St. Paul in connection with the cross-complaint. At his deposition, Lee explained that St. Paul did not place any limitations on his representation of Centex and never dictated or controlled what he could do regarding the prosecution of Centex's cross-complaint. The trial court granted St. Paul's motion.

     The court of appeals affirmed. Under California case law and statute, Centex had the right to obtain independent counsel paid for by St. Paul, as Centex's insurer, whenever their competing interests created an ethical conflict for counsel. Whether independent counsel was required depended upon the nature of the coverage issue as it related to the issues in the underlying case.

    In support of its argument that Lee could have influenced the outcome of the causation question, Centex provided only citations to its own summary judgment briefing, evidence that the trial court deemed inadmissible, evidence that did not fully support Centex's arguments. Because Centex was strictly liable for construction defects, causation would not necessarily have been litigated in the underlying action. Therefore, Centex failed to establish a triable issue of material fact on the question of whether Lee could have controlled the coverage disputed between St. Paul and Centex.

    Consequently, the judgment of the trial court was affirmed. 

Misread of Other Insurance Clause Becomes Costly for Insurer

    One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018). 

    Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system. 

    Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.

    In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits. 

    MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.

    Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense.  After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed. 

    The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy. 

    Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.

    Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich. 

    Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage. 

 

No Coverage Defenses After Two-Year Delay to Appear In Declaratory Judgment Action

    The federal district court found that the insurer was estopped from asserting coverage defenses after taking no action for two years before appearing in a declaratory judgment action filed by the insured. Sentinel Ins. Co. v. Walsh Constr. Co., 2018 U.S. Dist. LEXIS 6487 (N.D. Ill. Jan. 16, 2018). 

    Walsh Construction Company was the general contractor on a construction project to alter the streets and train tracks in Chicago. James Quigley, an iron worker for subcontractor S&J Construction Company, was crushed by a steel post. His estate filed suit against Central Contractors Service, Inc., the subcontractor that was operating the crane from which the steel post was suspended at the time of the accident, and Walsh. The complaint alleged that Walsh coordinated the work being done and designated various work methods and schedules for the project. 

    Walsh tendered its defense to Old Republic Insurance Company, claiming coverage as an additional insured under a policy issued to S&J. Walsh later tendered to Sentinel, the insurer for Genesis Structures, Inc., an engineering firm that had been involved in the preparation of the steel truss system. The subcontract with Walsh required Genesis to obtain primary insurance covering Walsh for the project.  

    The Sentinel policy promised to pay sums that the insured became legally obligated to pay as damages and to defend the insured. The term "insured" referred not only to Genesis, but also potentially to other persons or organizations "when [Genesis has] agreed, in a written contract . . . that such person or organization be added as an additional insured on [its] policy." This additional insured was covered "only with respect to liability for bodily injury . . . caused, in whole or in part, by [Genesis's] acts or omissions . . . in the performance of its ongoing operations." 

    Sentinel denied coverage, asserting the policy did not cover "professional errors and omissions" of Genesis. Further since Genesis had not been asked to design a truss post rigging system, the failure of the rigging system was not caused by Genesis.

    In the underlying case, the Quigley estate named Genesis as a defendant in the first amended complaint and asserted a claim for negligence. Walsh filed a declaratory judgment action in state court that was dismissed due to improper service. Sentinel then filed this declaratory judgment action. Walsh and Genesis filed counterclaims, asserting the professional services exclusion did not apply and that Sentinel breached its duty to defend.

    Sentinel moved for summary judgment, arguing that the "any insured" language in the professional errors and omissions exclusion barred coverage for all insureds when one insured committed an act falling within the policy exclusion. The court disagreed. Sentinel did not clearly and specifically exclude all of the conduct Walsh was alleged to have negligently committed. Therefore, the policy at least potentially provided coverage for Walsh, and Sentinel had a duty to defend Walsh.

    Walsh also argued that because Sentinel breached its duty to defend, Sentinel was estopped from asserting its remaining policy defenses, including whether Walsh qualified as an additional insured and whether Sentinel's policy provided only excess insurance over the Old Republic's policy based on its "other insurance" clause. Under Illinois law, an insurer that refused to defend an insured had to seek a declaratory judgment of no coverage promptly or in a timely manner in order to avoid the application of the estoppel doctrine. Walsh tendered its defense to Sentinel in October 2012. This triggered Sentinel's duty to defend because Walsh was at least potentially covered under Sentinel's policy based upon the allegations against it in the Quigley suit.

    Sentinel's first action that might be considered a judicial resolution of the coverage dispute was its appearance in the state court action that Walsh filed in January 2015, even though at the time Sentinel's first action was to move to dismiss the case for improper service. The court found this two-year delay unreasonable and Sentinel was estopped from asserting coverage defenses.

    Sentinel's motion for summary judgment was denied and Walsh's motion for summary judgment was granted in part, establishing Sentinel's duty to defend. 

    

Additional Insured Is Covered Under On-Going Operations Endorsement Despite Subcontractor's Completion of Work

    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.