Additional Insured, Completed Operations, and the Duty to Defend
A Minnesota general contractor (GC) hired a subcontractor (Sub) to install a flat roof on a commercial building. Sub's CGL policy has a $1 million each-occurrence limit and a blanket additional-insured endorsement that applies only to liability arising out of 'ongoing operations.' Sub finished the roof in June and was paid. In September, heavy rain exposed a defect: the roof membrane was improperly adhered, and water damaged $150,000 of the GC's finished interior and $50,000 of the building owner's inventory. The owner also claims $30,000 in lost rent. The GC tenders the claim to Sub's insurer as an additional insured. Sub's insurer denies, citing the 'your work' exclusion and the completed-operations limitation in the endorsement. The GC's own CGL policy has a $1 million limit and a $10,000 deductible. The GC's insurer has not yet responded. The Sub employee who installed the roof is not injured. The owner has demanded payment from the GC and threatens suit.
1. Analyze coverage under Sub's CGL policy, including the additional-insured endorsement and the 'your work' exclusion.
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Sub's CGL policy is the first place to look, but the additional-insured endorsement is limited to 'ongoing operations.' The roof was completed and paid for in June, so the GC is not an additional insured for a September completed-operations loss. That defeats the GC's direct tender as an additional insured, though Sub itself may still have coverage. The 'your work' exclusion bars coverage for damage to the roof itself-Sub's work-but it does not automatically bar damage to other property, such as the GC's interior or the owner's inventory, if the damage was caused by an occurrence. Defective workmanship alone may not be an occurrence, but water damage to other property from a defective roof can be. The lost rent is an economic loss; it may be covered only if it flows from covered property damage to tangible property. The insurer should not use the 'your work' exclusion to deny the entire claim; it must separate damage to the roof from damage to other property.
2. Does the GC's own policy respond, and how should the adjuster handle the tender and duty to defend?
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The GC's own CGL policy may respond because the GC is the named insured and has been sued or tendered. The GC's policy has a $1 million limit and a $10,000 deductible. Coverage for damage to the GC's own completed interior may be limited by the 'your work' exclusion, but damage to the owner's inventory is damage to other property and is more likely covered. The duty to defend is broader than the duty to indemnify: if any claim is potentially covered, the GC's insurer should defend under a reservation of rights while it investigates. The adjuster should obtain the subcontract, the additional-insured endorsement, the completed-operations date, and the owner's complaint. The GC's insurer may seek subrogation against Sub or contribution from Sub's insurer. It should not deny solely because Sub's additional-insured endorsement is limited; that affects Sub's insurer's duty to the GC, not the GC's own coverage.
3. What claims-handling and ethical issues arise from the insurer's denial?
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The insurer should acknowledge the tender in writing, state its coverage position promptly, and explain the specific policy language for any denial. It should not rely on an oral denial. The adjuster must avoid a conflict between the GC's interests and the insurer's; if coverage is disputed, explain the reservation of rights and the insured's right to independent counsel if a conflict arises. Minnesota's unfair claims practices law prohibits unreasonable delay and failure to explain the basis for denial. The file should document the separation of covered and uncovered damages, the deductible, and any allocation. A blanket denial based on the additional-insured endorsement would be misleading because it ignores the GC's own policy and the damage to other property.