Tendering a Post-Completion Fire to the Subcontractor's Carrier
Halberd Construction was general contractor on a $4,000,000 warehouse completed and turned over to the owner in January 2024. Trelane Electric wired the building under a $600,000 subcontract that required Trelane to insure Halberd as an additional insured. Trelane's CGL is occurrence-based at $1,000,000 per occurrence / $2,000,000 aggregate, with the standard "damage to your work" exclusion and a blanket additional insured endorsement limited to liability arising out of Trelane's ongoing operations. In September 2024 a fire started in a junction box Trelane installed, causing $760,000 of damage to the warehouse interior and destroying $40,000 of Halberd's tools stored inside. The owner has sued Halberd for $800,000, alleging faulty workmanship and breach of contract. Halberd tenders the claim to Trelane's carrier as an additional insured.
1. Analyze Trelane's CGL response to the three damage components: the junction box and wiring, the warehouse interior, and Halberd's tools.
Read the worked answer
Component 1 - the junction box and wiring Trelane installed. No coverage. The "damage to your work" exclusion bars property damage to that particular part of the work performed by the named insured and out of which the damage arose. The failed component is the paradigm case. Note the exclusion reaches the particular part, not all of Trelane's work on the project.
Component 2 - $760,000 damage to the warehouse interior. Coverage exists in principle. This is damage to property other than the defective part - an accident, an occurrence, and property damage. The exclusion does not reach it. Whether Trelane's carrier actually pays depends on the additional insured question below; as to Trelane itself, coverage is available for damage to other property.
Component 3 - $40,000 of Halberd's tools. Same answer as component 2. The tools are neither Trelane's work nor Trelane's property. But check the care, custody, and control exclusion - the tools were in the building while Halberd was still storing equipment there, and an insurer could argue Halberd's property was in Trelane's care. Weak, but expect the argument.
Key distinction. The exclusion removes the cost of fixing Trelane's defective work. It does not remove liability for the consequences of that work on everything else. Confusing the two is the most common error in construction defect claims.
2. Is Halberd an additional insured for this claim given the "ongoing operations" limitation? What should Halberd do, and where does its own CGL fit?
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The AI tender fails on the endorsement language. The blanket additional insured endorsement is limited to liability arising out of Trelane's ongoing operations. Turnover occurred in January 2024; the fire and the suit came in September, after completion. The loss does not arise out of ongoing operations, so the tender to Trelane's carrier as an additional insured is likely to be denied - not because the loss is uncovered, but because Halberd's insured status had ended.
This is a contract problem, not just a coverage problem. The subcontract promised AI status; it did not deliver status for post-completion claims. Halberd's remedy against Trelane runs through the subcontract's indemnity clause and, if it exists, a completed-operations AI endorsement that should have been required at signing.
Halberd's own CGL. This is the practical answer. Halberd is being sued as the general contractor for its own liability. Under the standard ISO treatment, the "your work" exclusion does not bar damage to the warehouse interior caused by a subcontractor's work - the subcontractor exception restores it. That gives Halberd's carrier a potential duty to defend and indemnify, subject to self-insured retentions and the aggregate.
Action list. Tender to Halberd's own carrier immediately (do not wait on Trelane's denial); give Trelane's carrier written notice even while expecting a denial; preserve the indemnity claim and put Trelane on notice of it; confirm whether the subcontract required completed-operations AI status.
3. How should the duty to defend be analyzed, and how should a reservation of rights change Halberd's strategy?
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Duty to defend is broader than the duty to indemnify. The carrier looks at the complaint's allegations, not at what it expects to prove. The suit pleads faulty workmanship (a negligence theory) and breach of contract. The contract count is generally not covered; the negligence count, given the subcontractor exception, is potentially covered. Any potentially covered claim triggers a defense of the entire suit, including the uncovered counts, until the covered claims are resolved.
Why the carrier likely defends under a reservation. It cannot yet know whether the $760,000 interior damage was caused by Trelane's work or by Halberd's own coordination. That uncertainty cuts in favor of defending now and reserving the right to deny indemnity later.
What the reservation does to strategy.
- It creates a conflict: the carrier's reserved defenses (your work) align against Halberd on some theories. In many states Halberd may select independent counsel at the carrier's expense - ask, in writing.
- Halberd must not settle or assume obligations without the carrier's consent, or it risks the indemnity.
- The reservation of rights is not a denial. Keep the carrier fully informed; document every tender and response.
Practical sequencing. Tender to both carriers on day one, demand a written coverage position within the statutory period, preserve the indemnity claim against Trelane, and do not let a Trelane denial stall the defense of the underlying suit.