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'Ongoing Operations' Limitation in Additional Insured Endorsement Precludes Coverage for Post-Completion Defects
Insurance Law Update
October 2009
By:
John Na
U.S. District Court for the District of Arizona
In Tri-Star Theme Builders, Inc./PCL Const. Serv., Inc. v. Hawkeye-Security Ins. Co., ___F.Supp.2d___, 2009 WL 2870217 (D. Ariz. September 3, 2009), the Arizona federal district court, interpreting Arizona law, held that the “ongoing operations” language in an additional insured endorsement precluded coverage for defense and indemnity in a lawsuit alleging construction defects that manifested after operations were complete.
At issue was an additional insured endorsement issued by the insurer to a plumbing and HVAC subcontractor involved in the construction of a resort. The endorsement provided coverage for the general contractor, Tri-Star Theme Builders, but only with respect to liability arising “out of the subcontractor’s ongoing operations” performed for the general contractor. The insured subcontractor performed operations at the resort from March 1998 to approximately April 1999, when the resort was substantially completed. Due to construction-related defects, the owner of the resort filed suit against the general contractor in November 2003. The general contractor tendered the lawsuit to the subcontractor’s VAC insurer for defense and indemnity as an additional insured, but the insurer denied the tender.
The district court applied the “common sense interpretation” of “ongoing operations” and held that the endorsement “only applies to liability arising out of [the subcontractor’s] work that is actually in process at the [r]esort.” The court was further swayed by other provisions of the policy that provided that the general contractor’s status as an additional insured terminated upon the subcontractor’s completion of its operations. Accordingly, the court held that only those “damages that manifest themselves during the subcontractor’s work actually in progress are covered” under the additional insured endorsement.
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