Insurance Law Hawaii

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. 

Insurer's Attempt to Limit Additional Insured Status Fails

    The court disagreed with the insurer's attempt to limit additional insured status based upon the contract between the parties. Mays v. In re All C-Dive LLC, 2017 U.S. Dist. LEXIS 185874 (E.D. La. Nov. 9, 2017). 

    Five employees of C-Dive LLC filed a lawsuit after belng injured in a pipeline explosion aboard a vessel servicing a pipeline owned by Gulf South Pipeline Company. During the work, there was a release of gas that caused an explosion and injured the employees. 

    Gulf South was a subsidiary of Boardwalk Pipelines LP. Boardwalk Pipelines entered into a Master Services Agreement (MSA) with C-Dive. C-Dive and Gulf South also entered into a Scope of Work Agreement (SWA), whereby C-Dive was to decommission the pipeline. The SWA incorporated the MSA. 

    The MSA applied to both Boardwalk Pipelines and its subsidiaries, including Gulf South. The agreement was "by and between Boardwalk Pipelines, LP and C-Dive, LLC." It further stated that "reference to Boardwalk shall also include its subsidiaries, including but not limited to . . . Gulf South Pipeline Company." The MSA required C-Drive to maintain insurance which would include Boardwalk Pipelines, LP as additional insured.

    Gulf South made third-party claims against the insurers as an additional insured under the policies issued to Baordwalk. The insurers moved for summary judgment, arguing that the MSA obligated C-Dive to name only Boardwalk Pipelines as an additional insured and not its subsidiaries. 

    The court disagreed. The insurers argued that the MSA's additional insured provision referred to 'Boardwalk Pipelines LP," rather than the shorthand, "Boardwalk." Therefore, Gulf South was not included as an additional insured. But the plain meaning of the MSA meant that the terms "Boardwalk" and "Boardwalk Pipelines" were interchangeable. The agreement first stated that Boardwalk Pipelines LP was "hereinafter referred to as 'Boardwalk.'" Thus, when the MSA used the phrase "Boardwalk," it was referring to the entity Boardwalk Pipelines.  

    Therefore, Gulf South was an additional insured under the policies. 

    

Insurer Has Duty to Indemnify But No Duty to Defend

    The court found that the insurer was obligated to indemnify, but not to defend the insured. Old Republic Ins. Co. v. Kenny Constr. Co., 2017 U.S. Dist. LEXIS 189412 (N.D. Ill. Oct. 31, 2017).

    Kenny Construction Company was hired by the Army Corp of Engineers to work on the Chicago Deep Tunnel flood control project. Kenny hired Meccon Industries, Inc. as a subcontractor to perform mechanical work and furnish materials for the project. The subcontract required Meccon to provide coverage for the contractor and any other additional insureds as required on the Insurance Requirement Sheet attached to the contract. Neither party was able to produce the Insurance Requirement Sheet.  

    The subcontract also required Meccon to submit to Kenny certificates from Meccon's carriers noting CGL coverage to cover the indemnity agreement in the contract. 

    Meecon procured CGL policies from Old Republic from 2002 to 2010 and provided insurance certificates to Kenny between 2002 and 2007. The certificates each listed Kenny as an additional insured under the policies. The certificates, however, also mentioned that they were issued for information only and did not confer any rights upon the certificated holder. 

    The Old Republic policies did not specifically mention Kenny as an additional insured. Instead, the policies defined "all persons or organizations as required by written contract" to be additional insureds. Although the policies had separate endorsements for ongoing operations and completed operations coverage, the definition of additional insureds was identical in each endorsement.

    During Meecon's work, it requested to substitute an alternative part known as a Smith-Blair clamp for parts called for in the plans. Kenny sent the request to the Corp, which approved the changes. In August 2010, the Corp issued a final inspection and acceptance letter to Kenny. 

    In 2008, however, the Corp had discovered leaks which corroded various mechanical and electrical equipment in the tunnel. It was eventually determined that the Smith-Blair clamps caused the problem because they were not rated to withstand the operating fluid pressures within the tunnel. The Corp issued a Final Decision concluding that Kenny was liable for the damages caused by the negligent approval of the request to use the Smith-Blair clamps. The Final Decision awarded $11 million in property damage to the Corp. Kenny eventually settled by paying the Corp $100,000.

    Old Republic was notified of the Final Decision and filed an action for declaratory judgment. Old Republic argued that Kenny was not an additional insured. Old Republic contended Kenny was not a "person or organization required by written contract" to be an additional insured because the Kenny - Meccon subcontract did not require Meccon to make Kenny an additional insured on its CGL policy. Instead, it required only that Meccon provide Kenny with certificates of insurance listing Kenny as an additional insured. 

    The court disagreed with Old Republic. That the subcontract required Meccon to certify that it had CGL insurance could only be reasonably construed as requirement that Meccon actually have such coverage. Whether the language requiring submittal of Meccon's "evidence of insurance shall include the contractor, the owner and any other additional insureds as required per the Insurance Requirement Sheet," made Kenny an additional insured was ambiguous. Therefore, the court looked to parol evidence.

    The certificates of insurance provided that Kenny was in fact an additional insured. Therefore, the intent of the parties to the subcontract was to require that Kenny be an additional insured on Meccon's policy. Since Kenny was therefore an "organization . . . required by written contract" to be an additional insured, it qualified as an additional insured under Old Republic's policy. 

    Next, Old Republic argued it had neither a duty to defend or nor indemnify because the Final Decision was not a "suit" under the policies. The court agreed that the Final Decision process was not a "suit" under the policy and Old Republic had no duty to defend. But there was nothing in the policy which altered Old Republic's duty to indemnify. They duty to defend was limited to certain types of proceedings ("suits"), but no such restriction existed for the duty to indemnify. 

    Finally Old Republic argued that Kenny was not covered under the ongoing operations or completed operations additional insured endorsements. Old Republic contended that Kenny could not be covered under the ongoing operations endorsements because there was no evidence that any damage occurred while Meccon was still working on the projects. But when the damage occurred was not relevant because Kenny was an additional insured under both the ongoing operations and completed operations endorsements. The two endorsements used identical language to define additional insured contractors: "all persons or organizations as required by contract." Therefore, Kenny was an additional insured under both endorsements.  

    

    

Production of Pre-Denial Claim File Compelled

    The appellate court found that the claims file that existed before the insurer's denial was discoverable. Cascade Builders Corp. v. Rugar, 2017 N.Y. App. Div. LEXIS 7357 (N.Y. App. Div.. Oct. 19, 2017).

    Cascade Builders was the general contractor for the homeowners. In May 2011, Cascade subcontracted with John Rugar to perform certain exterior power washing on the residence. The contract between Cascade and Rugar required Rugar to indemnify and hold Cascade harmless for any work performed by Rugar and to obtain coverage naming Cascade as an additional insured. Rugar procured the required CGL policy from Utica First Insurance Company. 

    While pressure washing the residence, Rugar used a cleaning solution that allegedly caused damage to the exterior of the residence. Cascade submitted a demand to Utica for damages sustained. Utica denied coverage for both Cascade and Rugar. Cascade's carrier subsequently paid the homeowners $600,000 for the damage sustained to the exterior of the residence. The homeowners released Cascade from any further liability and assigned their right to bring suit against Utica and Rugar. 

    Cascade sued Utica and Rugar, alleging  negligence by Rugar and breach of contract by Utica. Cascade requested Utica's pre-denial claim file. Utica provided a portion of the claim file and a privilege log. Cascade then demanded production of the entire pre-denial claim file. Utica and Rugar moved for a protective order prohibiting disclosure of the documents in the privilege log because it listed materials prepared in anticipation of litigation. Rugar also sought a protective order. 

    The trial court denied the motions and ordered Utica to provide Cascade with the entire pre-denial claims file. On reconsideration, however, the court granted Rugar's motion for a protective order. 

    The appellate division reversed. The payment or rejection of claims was a part of the regular business of an insurance company. Reports which aided the insurer in the process of deciding whether to pay or reject a claim were made in the regular course of business. Therefore, reports prepared by insurance investigators, adjusters, or attorneys before the decision was made to pay or reject a claim were not privileged and were discoverable. 

    Here, all the documents set forth in the subject privileged log were prepared prior to Utica's May 9, 2012 disclaimer of coverage. Since Utica failed to establish that the withheld documents were prepared solely in anticipation of litigation, the burden did not shift to Cascade to demonstrate an undue hardship justifying disclosure of the pre-denial claim. 

 

    

Insurer's Summary Judgment Motion on Business Risk Exclusions Fails

    The insurer unsuccessfully moved for summary judgment on the CGL policy's business risk exclusions. Scottsdale Ins. Co. v. TL Spreader, LLC, (W.D. La. Oct. 20, 2017).

    Helena Chemical Company contracted with its customer Wild Farms to sell and apply certain herbicides and pesticides to Wild Farms' 123 acre rice filed. Helena subcontracted the TL Spreader, LLC (TLS) to apply the chemicals to Wild Farm's rice field. The TLS employee failed to properly neutralize a chemical being used in the spray. 

    TLS finished its work on May 6, 2014, completing all its work for Helena's contract with Wild Farms. Three days after completion of the spraying, the rice crop first began to exhibit physical damage in the form of abnormal stunting, lesions, yellowing and death. 

    Wild Farms made a claim for crop damage allegedly incurred because of the misapplication of chemicals. TLS provided notice of this occurrence to Scottsdale. Coverage was denied. Helena ultimately settled the claim of Wild Farms, with payments from both TLS and Helena.

    Helena was an additional insured on TLS's policy with Scottsdale. TLS and Helena made a final demand on Scottsdale. Scottsdale filed a declaratory judgment suit.

    Scottsdale moved for summary judgment. Scottsdale first argued there was no coverage because there was no property damage to tangible property. Claims for the hope of future income from crops constituted intangible, incorporeal property and were not covered under the policy. The court, however, found that the policy was triggered by the undisputed facts. Application of the wrong chemicals to the rice field resulted in physical damage and loss of use of tangible property, constituting property damage.

    Scottsdale next contended that Exclusion (j) (6) precluded coverage for property damage arising from the incorrect performance of TLS's work. Exclusion (j) (6) applied while the insured's work was in process, i.e., the work was not yet completed. The exclusion did not apply, however, to property damage included in the products-completed operations hazard. The products-completed operations hazard applied only to property within the hazard after the work was completed. Under the products-completed operations hazard provision, damages, other than the faulty product or work itself, arising out of the faulty workmanship were covered by the policy.

    Therefore, Scottsdale's policy extended coverage to the insureds depending upon whether their work was completed at the time of the occurrence. Prior to completion, the policy unambiguously excluded coverage for all damages arising out of the insureds' incorrectly performed work. However, once the work was completed, the claim did not fall within Exclusion (j) (6) as the products-completed operations hazard provision provided coverage for any damages caused by the insureds' faulty work, except the cost to repair the faulty work itself. 

     The court agreed with the insureds that coverage was not triggered until the property damage manifested, which was after completion of the work. Therefore, Scottsdale failed to carry its burden and show Exclusion (j) (6) negated coverage. Scottsdale's Motion for Summary Judgment was denied. 

Duty to Defend Sorted Between Two Insurers Based Upon Lease and Policies

    Two insurers disagreed on which was responsible for defense costs in the underlying personal injury suit against the insured. Nautilus Ins. Co. v. Westfield Ins. Co., 2017 U.S. Dist. LEXIS 158480 (E.D. Pa. Sept. 27, 2017).

    Knerr Group, Inc. lease property to Podcon, Inc. pursuant to a written lease. A man named Anthony Postell suffered an injury in an accident on the premises during the term of the lease. Postell filed a personal injury action against Knerr and Podcon, among others. Nautilus provided a defense to Knerr in the Postell case pursuant to a policy Nautilus issued to Knerr. Podcon was insured by Westfield.

    Knerr requested a defense from Westfield, claiming it was an insured based upon certain provisions in the lease with Podcon. The lease required Podcon to secure liability policies to cover the property. The Westfield policy's "General Liability Expanded Plus Coverage Endorsement" provided that "[a]ny person or organization" that Podcon "agreed in a written contract to name as an insured" was an additional insured under the policy. Such coverage, however, only extended to "liability arising out of the ownership, maintenance or use of that part of the premises leased" to Podcon.

      Nautilus' complaint sought a declaration that Knerr was an insured under the Westfield policy and that Westfield was obligated to defend Knerr in the underlying case. 

    Westfield sought to dismiss the case under Rule 12 (b) (1) because Nautilus lacked standing to assert its claims as it was seeking a declaration of Knerr's legal interests rather than its own. But Nautilus alleged it had suffered a concrete monetary injury as a direct result of Westfield's allegedly wrongful denial of coverage to Knerr. These allegations were sufficient to establish that Nautilus was asserting its own legal interests rather than those of a third party. 

    Dismissal was also sought under Rule 12 (b) (6) because Westfield's policy and the lease demonstrated as a matter of law it was not obligated to cover Knerr as an additional insured. The complaint, however, alleged that the lease required Podcon to add Knerr as an additional insured. Westfield conceded that the Expanded Endorsement would require it to provide coverage to Knerr if Podcon agreed in the lease to name Knerr as an additional insured.

    The lease required Podcon to maintain certain liability insurance. It further stated that all insurance policies would name the tenant as the insured. Because the lease did not clearly state that the tenant was obligated to designate the landlord as an additional insured, Westfield argued that the plain language of the lease unambiguously contradicted Nautilus' allegation that Podcon was required to name Knerr as an insured. The court agreed that the lease was ambiguous because the sentence requiring the designation of additional insureds was incomplete. Although the sentence listed a series of entities, it did not contain a predicate verb indicating what, if anything, was to be done to or by those entities. Therefore, the sentence was ambiguous. 

    Accordingly, the court concluded that the complaint plausibly alleged that the lease amounted to an agreement that Podcon would add Knerr as an additional insured under Westfield's policy. Westfield's motion to dismiss was denied.