Construction contracts typically require a subcontractor to name the general contractor as an additional insured on the sub’s Liability insurance policy. It is not unusual for the contract to require this coverage for claims arising out of both the sub’s ongoing and completed operations. The GC is vulnerable to lawsuits arising out of the sub’s ongoing work and from flaws in the finished project. Consequently, subcontractors need Completed Operations coverage for additional insureds.
However, the insurance industry several years ago took steps to eliminate Completed Operations coverage from the policy form most commonly used to cover additional insureds. The 1985 edition of ISO form CG 20 10 provided coverage for the person or organization listed on it for “liability arising out of ‘your work’ for that insured by or for you.” The Commercial General Liability policy defines “your work” as work or operations performed by the named insured or on its behalf and materials, parts and equipment furnished in connection with the work. Courts interpreted this to mean that additional insureds had coverage for the contractor’s completed operations. In 1993, ISO announced that it was revising the CG 20 10 form, stating that it had never intended for the form to provide this coverage. The form now stated that it provided coverage for liability arising out of the named insured’s ongoing operations. ISO also introduced a new form, CG 20 37, which covers the additional insured for liability arising out of the named insured’s work and occurring away from premises the named insured owns or rents.
To illustrate how these endorsements apply, assume an electrical contractor is responsible for installing the wiring in an office building under construction. Part of the job involves connecting automatic thermostats in each individual office to a master heating and cooling control. The contractor’s employees secure the wiring to building studs using staple guns. While securing wire, an employee becomes distracted by a colleague who interrupts him to ask where a tool is. He accidentally squeezes the trigger on the staple gun while it’s pointed at another contractor’s employee, causing painful injuries. The injured employee sues the general contractor and the electrical contractor. The electrical contractor’s CGL policy includes endorsement CG 20 10 and lists the GC as an additional insured. Because this accident happened during the electrical contractor’s ongoing work for the GC, the policy will cover the GC.
Now suppose that the electrical contractor finishes the job and leaves the site with no plans to return. The GC accepts the electrical work as delivered. As the building nears completion, the GC tests all its systems. During the electrical test, loose wiring on the second floor sparks and ignites insulation in the wall, causing a fire that damages parts of two floors. The building owner sues the GC for the damage and rents lost due to the delay. Because the electrical contractor no longer had ongoing operations for the GC, endorsement CG 20 10 will not apply. Instead, the policy would have to include endorsement CG 20 37 to cover the GC.
Note that neither of these endorsements would cover the GC if the GC was entirely responsible for the losses. For coverage to apply, the electrical contractor must be at least partially liable.
All contractors should discuss their contractual obligations with our experienced insurance agents. The agent can advise on which insurance companies are willing to provide the needed coverage, what they will charge, and how they will handle claims. Most contractors need completed operations coverage for their additional insureds. Make sure that you have it before the job starts or the loss occurs.