In the context of “additional insured” coverage, the question of whether a tendering party qualifies as an insured is often complicated by restrictions in additional insured endorsements that limit who qualifies for “additional insured” status. Of these restrictions, one of the most debated is the “ongoing operations” limitation, commonly stated as follows: “Such person or organization is an additional insured only with respect to liability . . . caused, in whole or in part, by . . . your acts or omissions . . . in the performance of your ongoing operations for the additional insured.”
Although it appears that the insurance industry’s intent in adding the “ongoing operations” limitation was to clearly avoid coverage “for liability arising out of products-completed operations exposure,” Pardee Constr. Co. v. Ins. Co. of the West, 77 Cal. App. 4th 1340, 1359 (2000), that goal has not been accomplished, as the Ninth Circuit recently found that a standard “ongoing operations” limitation was ineffective to eliminate coverage for liability arising out of completed operations, Tri-Star Theme Builders, Inc. v. OneBeacon Ins. Co., 426 Fed. Appx. 507, 511 (9th Cir. 2011)(unpublished).
In Tri-Star, the Ninth Circuit held that the timing of damages was irrelevant to the analysis of an “ongoing operations” limitation, reasoning that: “The ongoing operations clause . . . addresses only the type of activity . . . from which the . . . liability must arise in order to be covered, not when the injury or damage must occur.” Id. (internal quotations omitted). In other words, if the named insured is engaged in siding operations at the time of acquiring the additional insured endorsement, then the only effect of the “ongoing operations” limitation is to restrict additional insured coverage to liability arising out of siding operations—regardless of when that work or resulting damage occurred. Under this rationale, the “ongoing operations” limitation is hardly any limitation at all.
While several courts have interpreted the “ongoing operations” limitation to specifically exclude additional insured coverage for liability arising out of products-completed operations exposure, the Ninth Circuit’s reasoning is already catching on in other courts. Compare, Pardee, supra; United Fire & Casualty Co. v. Boulder Plaza Residential, LLC, 633 F.3d 951 (10th Cir. Colo. 2011); Duininck Brothers, Inc. v. Howe Precast, Inc., Case No. 4:06-cv-441, 2008 U.S. Dist. LEXIS 70938 (E.D. Tex. Sept. 19, 2008); American International Specialty Lines Insurance Co. v. KinderCare Learning Centers, Case No. 07-642-KI, 2010 U.S. Dist. LEXIS 78374 (D. Or. July 30, 2010) (excluding additional insured coverage for liability arising out of products-completed operations exposure), with McMillin Constr. Servs., L.P. v. Arch Specialty Ins. Co., 2012 U.S. Dist. LEXIS 8339 (S.D. Cal. Jan. 25, 2012) (“Finding the reasoning of Tri-Star persuasive, this Court finds there is an ambiguity in the Additional Insured Endorsement at issue in this case”).
Thus, attorneys representing carriers (or policyholders) in additional insured disputes need to be keenly aware of whether or not the applicable state’s law recognizes the ongoing operations limitation as an effective bar to coverage for liability arising out of completed operations.