Insurance coverage: Be careful what you ask for

By Tristan Swanson Ashbaugh Beal

Contractors and owners alike want additional insured coverage that fully covers them against damage caused by downstream contractors. However as demonstrated by the recent Washington Court of Appeals decision Lewark v. Davis Door Service Inc. careless contract language will often result in additional insured coverage which is limited to damage occurring while the downstream contractor’s work is in progress. This type of coverage—“ongoing operations coverage”—is a fraction of the coverage owners and contractors want. Many types of damage can and do occur after project completion and therefore owners and contractors want to be covered during this “completed operations” time period as well. But as the Lewark decision underscores without the right additional insurance contract language completed operations coverage can be elusive.

Lewark arose from a contract Public Storage Inc. entered with Davis Door Service Inc. to perform work at Public Storage’s facilities. The parties’ “master agreement” required Davis Door to name Public Storage as an additional insured on its commercial general liability policy “during the entire progress of the work.” Two months after Davis Door completed repair work on a Public Storage door a woman attempted to open the door injured her back and sued both Public Storage and Davis Door. Davis Door’s umbrella liability insurer American States refused to defend Public Storage on the grounds that Public Storage was not covered by its policy.

After paying $150028 in defense costs Public Storage reached a settlement with the plaintiff for $299000 plus an assignment of all of Public Storage’s rights under the master agreement. Standing in Public Storage’s shoes the plaintiff then sued American States for breaching its duty to defend and committing bad faith. American States reiterated its argument that Public Storage was entitled to no coverage because: (1) Davis Door had only been required to name Public Storage as additional insured “during the progress of the work” (2) additional insureds could only be added to American States’ policy to the extent “required by virtue of a written contract” and (3) the injury to the Plaintiff had occurred after work on the door was complete. The Washington Court of Appeals agreed with American States.

In Washington according to the Court of Appeals “ongoing operations language … exclude[s] coverage for completed operations.” Here “the master agreement required insurance during the entire progress of the work.” The Court of Appeals reasoned under Washington law the language in the master agreement did “not require completed operations coverage.” As a result even if Davis Door had been required to add Public Storage to the American States umbrella policy American States would not owe Public Storage any coverage because (1) its coverage obligation would not have included completed operations coverage and (2) the injury occurred after Davis Doors’ work was complete.

The takeaway from the Lewark decision is clear: careful attention to contract language is necessary to secure completed operations coverage. At a minimum additional insured contract language must specifically require completed operations additional insured coverage; vague language referring to insurance covering the “progress of the work” will not work. Better yet is contract language not only requiring completed operations coverage but actually specifying the types of additional insured endorsements the downstream contractor must purchase (like the CG  20 10 and 20 37 endorsements). Tracking the receipt of these endorsements is also critical because if a downstream contractor fails to actually secure the right endorsements having the correct contract language is small consolation.

Tristan Swanson is an attorney with Ashbaugh Beal. He is a member of the AGC Future Leadership Forum (FLF) Steering Committee.