The Subcontractor's Claims-Made Policy and the Chiller That Failed After Completion
Ironwood Mechanical is an HVAC subcontractor on a hospital project for Harlow Construction, the general contractor. Ironwood's CGL is written claims-made with a 1/1/2022–1/1/2023 policy period, a retroactive date of 1/1/2018, $1M each occurrence / $2M aggregate, and no extended reporting period purchased. A blanket additional insured endorsement covers entities Harlow requires by written contract, but only for liability arising out of Ironwood's ongoing operations. In September 2022 Ironwood installs a chiller. In March 2023 the chiller fails and floods the mechanical room, causing $700,000 of damage to hospital equipment and Harlow's finished adjacent work; the chiller itself is a $90,000 loss. The hospital writes to Ironwood in May 2023. Ironwood tendered the claim in June 2023. Ironwood's renewal, effective 1/1/2023, is claims-made with a retroactive date of 1/1/2023.
1. Which policy year, if any, responds to the hospital's claim?
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Walk the two conditions of a claims-made form: the occurrence must be after the retroactive date, and the claim must be first made and reported during the policy period or an extended reporting period.
- 2022 policy: occurrence (September 2022) is after the 1/1/2018 retro date, but the claim was first made in May 2023, after the policy expired on 1/1/2023. No ERP was purchased, so there is no reporting tail. No coverage.
- 2023 policy: the claim is timely, but the occurrence predates the 1/1/2023 retroactive date. No coverage.
Result: a genuine gap between two policies. The retro date on the renewal is the killer - a renewal that resets the retro date rather than continuing the prior one destroys prior-acts protection. Ironwood's remedy was to buy the extended reporting period before 1/1/2023 or to negotiate a continuing retro date.
2. Assume the claim had been reported in time under the 2022 policy. Would Harlow be an additional insured, and is the $90,000 chiller loss covered?
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Harlow. The endorsement grants additional insured status only for liability arising out of Ironwood's ongoing operations. The chiller failed in March 2023, months after installation was complete. This is a completed operations claim, so Harlow is not an additional insured under this endorsement and would have to look to its own policy. A blanket AI endorsement limited to ongoing operations is the single most common reason a GC's tender is refused.
The chiller. The "your work" exclusion bars damage to the insured's own work/product - the $90,000 chiller itself is uninsured. But the exclusion does not reach damage to other property arising from that defective work, so the $700,000 of damage to hospital equipment and Harlow's finished adjacent work is potentially covered, subject to the $1M occurrence limit and the aggregate.
The judgment being tested: separate the damaged item from the insured's product/work, and separate ongoing operations from completed operations.
3. What should Ironwood's broker have done differently, and what exposure remains?
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Three concrete steps, all of which are contract-and-timeline decisions rather than pure coverage recall:
- Buy the ERP before 1/1/2023. Claims-made forms typically offer an extended reporting period if purchased within a stated window after expiration; it cannot be bought retroactively after a known claim.
- Preserve the retro date on renewal. A renewal that resets the retro date to the inception of the new policy silently erases prior-acts coverage - cheaper premium, catastrophic gap.
- Reconcile the contract requirements with the endorsement. Harlow's subcontract almost certainly required additional insured status for completed operations and a waiver of subrogation. The blanket endorsement delivered neither for this loss, so Ironwood is in breach of contract on top of being uninsured.
Remaining exposure: the full $790,000 is uninsured, Ironwood likely faces a contractual indemnity claim from Harlow, and its defense costs are unfunded.