Additional Insured Limitations Must Be Clear, Reasonable

Sep 29, 2017

California Court of Appeal rules that limitations must be explicitly stated.

 The California Court of Appeal in a recent case, Pulte Home Corp. v. American Safety Indemnity Co., Cal Ct. App. (4th Dist.) Docket No. DO 70478, ruled that an insurer cannot refuse to indemnify an additional insured based upon contract language that is open to more than one interpretation.

Gary Barrera, in an article on California Construction Law Blog, explains the court’s reasoning.

Pulte Home Corp., a large residential developer and general contractor, required all its subcontractors in a California housing project to list Pulte as an additional insured.

American Safety Indemnity Co. issued a series of policies that contained additional endorsement language listing “Pulte as an additional insured for completed operations.” Although the language in the three endorsements differed slightly, they all contained language similar to the wording in one of the contracts that “provided coverage for ‘liability arising out of your [the named insured subcontractor’s] work performed at the project designated in the contract endorsement and only ‘for ongoing operations performed by the [named insured contractor]’ on or after the endorsement’s effective date.”

Several home owners filed suit against Pulte for “defective construction.” Pulte requested that American Safety handle its defense. American Safety refused stating that their endorsement provision covered only ongoing operations not claims arising from completed operations. “Pulte sued American Safety for bad faith.”

The trial court ruled in Pulte’s favor and American Safety appealed. The California Court of Appeal “reaffirmed the trial court’s ruling that the additional insured endorsements were ambiguous because they combined coverage for ongoing and completed operations in a single clause, and failed to expressly limit coverage to the time of the subcontractor’s ongoing operations.”

The court also ruled that American Safety knew that the Pulte intended the endorsement to cover completed operations when they issued the endorsement.

As Mr. Barrera notes, the Pulte ruling is a victory for contractors because it states that an insurer is “obligate[d] to consider the developer or general contractor’s reasonable expectations of coverage when evaluating an additional insured tender.”


California Court of Appeal: Inserting The Phrase “Ongoing Operations” In An Additional Endorsement Is Not Enough to Preclude Coverage for Completed Operations, Gary Barrera, California Construction Law Blog, Sept. 11, 2017.