McCarter & English on Panel Finds for Additional Insured Under Ongoing-Operations Clause: Tri-Star Theme Builders, Inc., et al. v. OneBeacon Ins. Co.

McCarter & English on Panel Finds for Additional Insured Under Ongoing-Operations Clause: Tri-Star Theme Builders, Inc., et al. v. OneBeacon Ins. Co.

Brian Osias   By Brian J. Osias and Michael C. Smith, McCarter & English, LLP

Courts have struggled with the conflicting expectations of additional insureds and their insurers under the ongoing operations clauses frequently found in comprehensive general liability policies. In a recent decision with potentially far-reaching consequences, the Ninth Circuit has broadly construed a CGL policy's "ongoing operations" limitation in an additional insured coverage dispute. The Court found coverage based upon ambiguity in the policy's ongoing operations clause. This commentary analyzes this important ruling.

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The dispute arose as a result of the construction of a casino. Tri-Star was the general contractor for the Colorado River Indian Tribes for the construction of the resort and casino. Tri-Star subcontracted the plumbing and HVAC work to Golden West Mechanical, and requested that it be named an additional insured on Golden's CGL policy, which was issued by OneBeacon Insurance Company. Accordingly, Golden's policy was amended to include "[Tri-Star], but only with respect to liability arising out of . . . [Golden's] ongoing operations performed for . . . [Tri-Star] on the [Project]." When the Tribes discovered construction "defects" after completion of the project, they filed a complaint against Tri-Star. Because some of the alleged defects arose from the plumbing and HVAC work completed by Golden, Tri-Star tendered its coverage to OneBeacon.

OneBeacon denied Tri-Star's tender, and Tri-Star filed a complaint in the U.S. District Court of Arizona. In Tri-Star Theme Builders, Inc., et al. v. OneBeacon Ins. Co., 2011 U.S. App. LEXIS 7467 (9th Cir. Apr. 11, 2011), a panel of the United States Court of Appeals for the Ninth Circuit reversed the district court and found for the additional insured. This commentary explains that the decision represents a victory for policy holders, who may benefit from increased coverage in the short term and clarified policy language in the future. The authors state that the decision is a well-reasoned application of the maxim that ambiguities in insurance policies should be construed against the drafter, particularly where the insurers' interpretation conflicts with policy goals.

Download a free copy of the Lexis unenhanced version of the Tri-Star Theme Builders, Inc. v. OneBeacon Ins. Co., 2011 U.S. App. LEXIS 7467 (9th Cir. Ariz. Apr. 11, 2011).

Brian Osias is a partner, and Michael C. Smith is a law clerk, at the Newark, New Jersey office of McCarter & English, LLP. Both work in the firm's insurance coverage practice group. The opinions in this article are those of the authors alone and do not represent the views of McCarter & English, LLP.

The article is for informational purposes only and is not offered as legal advice as to any particular matter.  No reader should act on the basis of this article without seeking appropriate professional advice as to the particular facts and applicable law involved.

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