Additional Insured Status for Ongoing Operations at Issue

The insured town and its insurer brought a declaratory judgment action over a dispute pertaining to additional insured indemnification and defense. This case is Town of Fort Ann v. Liberty Mutual Insurance Company, 893 N.Y.S.2d 682 (2010).

This action involves a dispute over insurance coverage that arose following the failure of a dam owned by the town of Fort Ann. The dam had been reconstructed by Kubricky Construction Company. The town had entered into two contracts, one with Heynan Teale Engineers for engineering services related to the dam project, and another with Kubricky to do the reconstruction work. After the dam's failure, numerous lawsuits ensued in which the town was named as one of the defendants. Fort Ann (and its liability insurer) sought defense and indemnification from Steadfast Insurance Company (the insurer of Heynan) and from Liberty Mutual Insurance (the insurer of Kubricky). Both insurers disclaimed any obligation toward Fort Ann asserting that the town did not qualify as an additional insured under the terms of the respective policies.

When this case got to the state Supreme Court, Appellate Division, that court noted that the Liberty Mutual policy extended insured status to an entity when Kubricky's written contract to provide work for the entity required such coverage. The written contract between Fort Ann and Kubricky required Kubricky to maintain such insurance until the town accepted the completed project. Liberty Mutual claimed that the additional insured coverage ceased since the policy provided such coverage only so long as Kubricky had ongoing operations at the project.

The appeals court said that the term “ongoing operations” is interpreted broadly in New York . Work may be considered as ongoing during a short lapse of time necessary to conduct tests designed to assure proper performance where such testing is an essential element of the work by the insured. While major construction by Kubricky had ended one to two months before the dam's failure, inspection of the project by the engineer, which was required before Kubricky's work was considered completed under the contract, had not yet occurred. The court said that in light of the nature of the project, such inspection was not merely a minor after-the-fact detail. Therefore, the project was deemed by the court to be an ongoing operation.

As for the Steadfast policy, that policy provided that a client of Heynan would be an additional insured when required by written contract executed and effective before the performance of the named insured's work. This did occur, but the contract also stated that certificates of insurance would be furnished upon request naming Fort Ann as an additional insured; Fort Ann did not request the certificate of insurance until after the dam had failed. The court ruled that as long as a clear written intent to include an entity as an additional insured is manifested prior to the loss, the fact that certificates of insurance are not issued until after the loss does not compel the conclusion that such entity is not an additional insured. The fact that Heynan agreed in the contract that it was prepared to supply certificates of insurance upon request reflects a clear intent to include Fort Ann as an additional insured, and so the failure of Fort Ann to request a certificate was not crucial to its additional insured status.

The court ruled that Fort Ann was an additional insured under both policies.

Editor's Note: Most liability policies define when work is deemed completed; this court explains when a project is deemed an ongoing operation. This is important since many additional insured endorsements (for example, CG 20 10, additional insured—owners, lessees, or contractors) have been written to specifically include an additional insured for ongoing operations only. It makes financial sense to cover an additional insured under circumstances such as in this case for ongoing operations only; and when both the work contract between the insured and the additional insured entity and the insured's liability policy clarify the timing of the additional insured status, this should be beneficial to all parties.