Wrap Ups present complications for completed operations coverage

1. The extension endorsement is effective “if the Insured is required by written
contract to maintain such coverage.”
It is not obvious that <client> is party to any contract that requires this
coverage. Absent that agreement, the Aggregate for Products-Completed
Operations remains at $1MM. Even if <Client> has an agreement with the
<client’s corporate parent> to obtain $X amount of liability insurance, it is not
good to require such an agreement in order to get covered. It’s one more thing
that can go wrong.
The excess insurance policies are not sufficient. They are not sufficient because
they do not express an obligation on the part of <Client> to obtain and
maintain the coverage. The excess policies provide instead that if <Client> does
not obtain and maintain the required underlying coverage, then the excess
policies “do not apply” to the losses. The difference is between
a covenant (something that one has promised) and a condition (which triggers
or cancels other promises but is not itself a promise).
There is no good reason for <Client>’s insurance coverage--which <Client> is
paying for in order to protect itself--to depend on a contract with another party.
Why would <Client> agree to cut off completed operations coverage after only
three years? This might be used to deny coverage for losses arising out of
construction defects that occur more than three years down the road.
Occurrence-based insurance is permanent insurance--as long as the policy is
maintained, its coverage is potentially perpetual. No wonder they are trying to
trim this coverage out of existence.
“Failure to protect or maintain completed portions of the project by the owner
or the contractor will invalidate coverage.” This is simply a non-starter. This is
not written as one would expect. One would expect an express exclusion,
perhaps along the lines of a neglect exclusion that is sometimes seen in
property policies. This clause might mean that if an injured plaintiff showed
that a failure to repair and maintain the premises caused or contributed to the
occurrence, there would be no coverage. Plaintiffs will always plead failure to
maintain; this will draw a reservation of rights from the insurance company;
and while current FASB rules don’t appear to require that you allow for
potential failure of the insurance coverage, this still has potential to complicate
claims and impact <Client>’s bottom line.
The Products-Completed Operations Extension Endorsement does not belong
here. This is a very specific endorsement used to add completed operations
coverage to a wrap-up policy so that the policy can be cancelled--ending the
substantial premium burden--while keeping the policy in effect for purposes of
completed operations claims. It would make sense if this endorsement were
added to the wrap-up policies for <old project>. I do not have access to the
policies for that project, but I would expect to see an extension endorsement or
equivalent in that policy, which is underwritten by <a different carrier> not
<the carrier on our policy>. In the absence of this endorsement, <Client> would
have coverage for defects for the life of the insurance policy.

2. Why is the Products-Completed Operations Extension Endorsement limited to
<old project>? There seems to be ongoing cross-interference between <Client>’s
general insurance program and its project-specific construction coverage. As
indicated, the CGL layer for the project was not underwritten by <our carrier>,
nor was it placed by <our producer>. The Products-Completed Operations
Extension Endorsement, with its reference to the old project, might be a
problem. In any event, I see no reason why the Products-Completed Operations
Extension Endorsement should not be removed from the policy.
The effective date issue. The endorsements should be effective as of the date
the policies became effective. If there was an occurrence in the last quarter of
2012, but the damage or injury did not emerge until now, there could be a
problem. Client did not fulfill the conditions of the insurance policy. If the court
reads the policy closely, it could find that whether or not a loss would go
unpaid due to the size of the aggregate limit, still because the conditions were
not satisfied, none of the umbrella and excess policies will respond. More likely,
the court would use this issue to deny summary judgment, making it take
more time and money to get the claim paid.