Arizona “on-going operations only” additional insured endorsement

In Tri-Star Theme Builders, Inc. v. OneBeacon Ins. Co., 426 Fed. Appx. 507 (9^th Cir. 2011)(unpublished), owner Tribes hired general contractor Tri-Star to construct a commercial project.  After completion, Tribes sued Tri-Star for defective construction. Tri-Star tendered its defense to OneBeacon as an additional insured under OneBeacon’s CGL policy issued to named insured HVAC subcontractor Golden West.  The OneBeacon policies which were in effect while Golden West was working on the project provided that Tri-Star was an additional insured but only with respect to liability arising out of Golden West’s ongoing operations for Tri-Star. OneBeacon denied a defense on the basis that the Tribes complaint alleged only completed operations property damage. Tri-Star filed suit against OneBeacon.  The federal district trial court entered judgment for OneBeacon.  On appeal, the U.S. Court of Appeal for the Ninth Circuit reversed.  Applying Arizona law, the court held that OneBeacon’s “on-going operations only” additional insured endorsement was ambiguous and thus applied broadly to property damage occurring after Golden West completed its work as long as it arose out of Golden West’s on-going operations as opposed to its completed work.  The court rejected OneBeacon’s argument that the “on-going operations” only” phrase limited coverage to property damage occurring while Golden West was performing operations, stating that OneBeacon could easily have drafted the endorsement to limit coverage to property damage occurring during Golden West’s on-going operations.