Does The Wallace & Gale Decision Contradict Typical CGL Insurance Policy Wording?

In its decision In re Wallace & Gale Co., 385 F.3d 820 (4th Cir. 2004), the Fourth Circuit held that the completed operations aggregate in post operations policies applies where (a) initial exposure occurred after the operations were completed, or (b) initial exposure was during operations but injury continues after operations were completed. Policyholder counsel sometimes attempt to dismiss Wallace & Gale as conflicting with the contract wording. But the Fourth Circuit’s completed operations analysis is based on a straightforward application of the insurance contract language.

The Hartford policy in Wallace & Gale contained the following wording:

Subject to the above provision respecting “each occurrence,” the total liability of [Hartford] for all damages because of (1) all bodily injury included within the completed operations hazard and (2) all bodily injury included within the products hazard shall not exceed the limit of bodily injury liability stated in the schedule as “aggregate.”

“Completed operations hazard” includes bodily injury and property damage arising out of operations or reliance upon a representation or warranty made at any time with respect thereto, but only if the bodily injury or property damage occurs after such operations have been completed or abandoned and occurs away from premises owned by or rented to the named insured.

“Bodily Injury” means bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom. Id. at 834.

The Fourth Circuit looked at this contract wording and held that the “literal terms of the policy” were “entirely in accord with the decision of the district court,” and affirmed the lower court ruling. Id. In “parsing” the “completed operations hazard” definition, the District Court had concluded it was “clear that three elements are involved. There must be bodily injury during the policy period that (1) arises out of Wallace & Gale’s operations; (2) occurs away from premises owned by or rented to Wallace & Gale; and (3) occurs after these operations have been completed.” In Re Wallace & Gale Co., 275 B.R. 223, 237 (2002). The Court noted that the parties agreed that prongs (1) and (2) were met and the “sole inquiry, insofar as this issue is concerned, is whether the bodily injury occurred after Wallace & Gale’s installation operations were completed.” Id. The district court then concluded that the definition of “bodily injury” in the policy in conjunction with the “completed operations hazard” definition entirely resolved the issue:

Because the scope of coverage afforded by each policy is limited to bodily injury that occurs during the respective policy period, the bodily injury referred to in the “completed operations hazard” definition is necessarily the specific bodily injury that occurred during the policy period. Thus, if the bodily injury that occurs within the policy period “occurs after [the insurer’s] operations have been completed…,” that bodily injury is within the completed operations hazard. … [A]pplication of the completed operations hazard depends exclusively on the timing of the injury in relation to the completion of the insured’s operations. Id. at 238.

Thus, under Wallace & Gale, if the bodily injury during the policy period occurs after the operations are completed, it falls within the completed operations hazard and the aggregate limit for that hazard applies. For insurers who issued policies incepting long after the insured completed its asbestos installation work and who long ago exhausted their completed operations aggregate limits, the Wallace & Gale analysis effectively provides a complete defense.

For example, assume claimant Brown was exposed to asbestos during a six month period in 1965 when Insured installed insulation at a steam plant where he worked. After 1965, Brown’s injury continued including through Insurer’s one year policy period 1981-82. Thus, there is bodily injury which occurred during the policy period. The second question is whether the operations were completed when the 1981 injury occurred. In order to determine when an operation is “complete,” the policy defines three scenarios that constitute a completed operation. Policyholders typically focus on the third scenario: “When the portion of the work out of which the injury or damage arises has been put to its intended use.” In the Brown example, the bodily injury arose out of Insured’s installation of asbestos products in 1965. By 1981, when Mr. Brown’s “triggering” bodily injury occurred, Insured’s 1965 installation had been put to its intended use and thus the 1981 injury occurred after the operations at issue were “complete,” rendering Brown’s claim subject to the completed operations aggregate limit.

Policyholders argue that “once an operations claim, always an operations claim,” contending that if Brown’s injury is caused by operations in 1965, it remains an operations exposure through all subsequently triggered policies. The defect in this analysis is that it focuses only on the claimant’s first exposure, rather than on the bodily injury in the subsequently triggered policy’s period. But the “completed operations hazard” does not apply to any bodily injury, only to bodily injury that occurs during the policy period. Again, whether a claim falls within the completed operations hazard turns on when “bodily injury” under the policy occurred and whether it occurred after the operations were complete. And again, the policy defines “bodily injury” to refer only to injury “which occurs during the policy period.” That is the heart of the completed operations analysis in the Wallace & Gale decision and it is based on the plain (and only) meaning of the contract terms. As of the date of this note, no published decision has ever rejected that analysis.