GL Exclusion for Liability Insured Under a Wrap-Up? Ambiguous.

Per a federal court, a GL exclusion that refers to a “wrap-up” is ambiguous, so the carrier’s request for summary judgment against coverage was denied, and the plaintiffs’ corresponding request to establish coverage was allowed.

The underlying claims arose from an explosion during construction of the Kleen Energy plant in Middletown, CT in February 2010. The prime contract included a CCIP. When the plaintiff in the present case pursued the GL carrier for one of the subs, the carrier argued that the CCIP was a “wrap-up,” and coverage under the GL policy was thus excluded by the following: “This insurance does not apply to . . . any liability arising out of any project insured under a ‘wrap-up’ or similar rating plan.”

The Connecticut court, applying Georgia law, noted several factors. First, there was no definition for “wrap-up” or for “similar rating plan” in the policy. Second, the CCIP did not include property damage or builder’s risk coverage, and so there was a reasonable argument that the CCIP was not really a “wrap-up” as some in the insurance industry would understand. Third, the carrier had not taken any steps, in the policy or otherwise, to explain the scope of the exclusion. Fourth, the carrier “failed to show that ‘wrap-up’ has one peculiar meaning.” Fifth, and telling, the carrier’s own witnesses did not agree on what constitutes a “wrap-up.”

Applying Georgia law, the court held that the ambiguous exclusion would be construed in favor of the plaintiff and against the carrier, thus finding that the policy covered the claims at issue. All from use of a common, but not uniformly understood, term. The case is Thompson v. National Union Fire Insurance, 2017 U.S. Dist. LEXIS 52673 (D.Ct., April 6, 2017) (LEXIS subscription required).