The Fifth Circuit Court of Appeals recently ruled in Woodward, LLC v. Acceptance Indemnity Insurance Company, that a general contractor, named as an additional insured, did not have coverage for claims that a subcontractor performed faulty work. At issue was the language in the additional insured endorsement, which provided coverage for ongoing operations, not completed operations. The court held that the damages arose out of completed operations not the subcontractor’s ongoing operations, so the insurer had no obligation to defend the general contractor in the lawsuit challenging the quality of the subcontractor’s work.
In this case, the subcontractor named the general contractor as an additional insured. The additional insured endorsement provided that the general contractor was an additional insured, but only with respect to liability arising out of the subcontractor’s ongoing operations performed for the general contractor. The court interpreted this to mean that the additional insured endorsement would only cover claims based on the subcontractor’s actions actually in process and would not encompass completed operations. In essence, the general contractor was only an additional insured for liability caused by the subcontractor’s active work on the site and did not cover property damage manifesting itself after the subcontractor stopped working on the site.
While this case applies Mississippi, the issue Midwestern readers should consider is the court’s conclusion that non-conformance with the plans, in essence a construction defect claim, arises from completed operations. The court noted repeatedly that the additional insured endorsement excluded liability for property damage occurring after all work had completed. In essence, the additional insured endorsement will not provide coverage for claims arising after the work is completed.
Take Away: You should review your additional insured endorsement. And, you should review your contract to make sure you are either requiring (general contractor) or providing (subcontractor) the proper additional insured endorsement.