Ongoing Operations and Completed Operations Coverage

I often speak with prime contractors and owners who assure me that they require subcontractors to name them as additional insureds. This is the correct line of thinking as additional insured treatment is one of the key principals to adequately transfer the risk of construction defects or non property injury.

The devil, as they say, is in the details, however. During these inquiries I often ask for a copy of subcontract documents which, all too often, remain unclear as to the insurance policy requirements of subcontractors who are naming the prime contractor as an additional insured. For instance, the subcontracts are sometimes vague as to what coverage must be obtained by the subcontractor in order to adequately insure the general.

A prime contractor seeking additional insured coverage is limited to that specific coverage possessed by the subcontractor. For instance, if a subcontractor's policy is subject to exclusion(a), it follows that the prime contractor will also be excluded by those limitations.

Perhaps more widely overlooked is the fact that CGL policies recognize two forms of insurance. The first is completed operations coverage. This is the coverage which is triggered after completion of the project. It is key to triggering coverage for latent defects. The other form of coverage is ongoing operations coverage, which is the coverage which protects the parties during the period beginning at project commencement and ending at project completion.

The latter coverage, ongoing operations, is key in many job related injuries. For example, during the construction of a hotel, the subcontractor constructing the elevator fails to secure the opening and, tragically, a non employee or pedestrian is injured after falling several stories while exploring the construction site after work.

A claim like the one I just highlighted can be catastrophic, subjecting the prime contractor and sun to a multi million dollar judgment. Without obtaining ongoing operations coverage, both entities are "naked" when a claim is made that the injury occurred due to the subcontractors failure to secure the shaft.

A general contractor should take the small additional step of requiring both types of CGL coverage by having its contracts specifically require subcontractors to name it as an AI for both ongoing operations and products-completed operations coverage.

To discuss Additional Insured details in South Carolina and securing adequate protection, please contact Clay Olson of Harper Whitwell PLLC at 843-224-6676. Email clay@harperwhitwell.com.

Construction Manager entitled to Additional Insured Status

A recent decision in New York has held that a construction manager was entitled to additional insured treatment under a general contractor’s CGL policy.  Turner Constr. Co. v. Navigators Ins. Co., 2015 N.Y. Misc. LEXIS 2704 (N.Y. Sup. Ct. July 23, 2015).

The Construction Manager (“Turner”)    was hired to “provide pre-construction services and construction management services for the Project.”  

The owner hired two prime contractors under condition that each would procure endorsements to their CGL policies which were to name the owner and a “construction manager” which went unnamed.  

Plaintiff in the underlying suit, Edward Walls, was an employee of a prime contractor and was injured at the job site. He sued Turner and others for injuries. Turner claimed it was an additional insured under a Travelers policy which was issued to the prime contractor employing Plaintiff. Travelers argued Turner was not an additional insured because it was not named in the policy and was nowhere identified as the construction manager. Travelers further contended that Turner was not entitled to a defense because its costs in the underlying action did not equal the deductible in the Travelers’ policy.

The court found that Turner was the construction manager and the contractor’s promise in the contract with the project owner to provide additional insured coverage for the construction manager applied to Turner. 

The court went on to find that additional insured status was conferred under Travelers’ policy for any entity that the insured was required by a written contract to name as an additional insured.  

It was of no consequence that Turner was not named specifically in the contract or policy. Therefore, Travelers had a duty to defend Turner.

Florida Rules Developer Not Entitled to Additional Insured Coverage for Negligent Misrepresentation

A Florida court has determined that a project owner’s (Cypress) general partner was not an additional insured under an insurance policy issued to the Genral Contractor (WPC) who constructed the project.  The ruling was made in conjunction with a lawsuit brought by a homeowners association for construction defects, maintenance issues and failure to disclose material facts.  WPC’s insurer (St. Paul) was not obligated to defend or indemnify General Partner (Vineland) for damages arising from alleged construction defects. St. Paul Fire & Marine Ins. Co. v,. Cypress Fairway Condo. Ass’n (M.D. Fla. July 20, 2015).

It should be noted for factual understanding that Cypress and Vineland were both named additional insureds on three policies issued to WPC.  These policies were issued in 1999-2001 by St. Paul to WPC.  Cypress and Vineland were named as separate defendants and alleged to have mismanaged the property and negligently omitted information allegedly relied upon by buyers making up the Plaintiff association.

Defective Construction

While it conceded a duty to defend Cypress, St. Paul argued on summary judgment the policies did not include Vineland as an additional insured because it was not an owner of the property. The policies covered, “[a]ll owners, contractors . . . who require that you add them as an Additional Protected Person in a specific written contract entered into by you.” The construction contract required WPC to indemnify the owner, officers, directors, shareholders, partners and many others. This broad and general indemnification provision did not convert all the indemnitees into additional insureds. Therefore, St. Paul had no duty to defend or indemnify Vineland.

Negligent Misrepresentation 

As insurer for the general contractor, St. Paul argued it had no duty to defend or indemnify Vineland or Cypress as developer/sellers because the negligent supply of information did not cause property damage. The court agreed. 

Misresentations about the condition of the buildings might have induced Plaintiffs to purchase units, but these misrepresentations did not cause water intrusion and the resultant property damage. Further, representations were not accidents and could not be “events” within the meaning of the policies. While the Association may have suffered economic damage based on Cypress and Vineland’s representations, it did not suffer property damage caused by an event as defined in the policy.