### I N THE UNI T ED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-60561

CARL E. WOODWARD, L.L.C.; GRAY INSURANCE COMPANY, Plaintiffs - Appellees - Cross Appellants
v. ACCEPTANCE INDEMNITY INSURANCE COMPANY, Defendant - Appellant - Cross Appellee

Appeals from the United States District Court f or the Southern District of Mississippi

_ _ __________________________________ Before GARZA, SOUTHWICK, and HAYNES, Circuit Judges. LESLIE H. SOUTHWICK, Circuit Judge: This appeal presents the final set of issues arising from claims of negligent construction of a c o n d o m inium project in south Mississippi. The remaining parties are a contractor and two insurers. The district court held that a subcontractor’s Commercial General L iability (“CGL”) insurer breached its duty to defend th e g e n eral c ontractor. Disputed on appeal are the district court’s holding that there was a duty to defend, the allocations of costs and a ttorneys’ fees, the award of extracontractual damages but denial of punitive damages, a refusal to award pre-judgment interest, and the denial o f p e rmission to file a post-appeal motion for attorneys’ fees. U n i t e d S t a te s C o u rt o f A p p e al s F i f t h C i rc u i t 

### F I L E D February11, 2014 Ly l e W . Cay ce Clerk Case: 12-60561 Document: 00512528684 Page: 1 Date Filed: 02/11/2014No. 12-60561

We conclude that the district court erred in holding that there was a duty to defend. The allegations i n the complaint, even if properly supplemented by

an engineer’s report that w e w i ll later describe, d i d not place the CGL insurer

on n otice of a c laim under the policy. In light of t hat conclusion, the remaining appellate i ssues that concern the calculation and allocation of t h e co s ts of the alleged failure t o defend a re moot. W e REVERSE and R EMAND for entry of judgment for the subcontractor’s insurer. BACKGROUND Pass Marianne, L.L.C. contracted for t he construction of con d o m iniums on the M ississippi Gulf C oast. The gene r a l c o ntractor w as Appellee Carl E. Woo d w a r d

. Among the subcontractors was DCM Corporation, L.L.C., who entered a contract with Woodward for t h e concrete work. In November 2005, DCM o btained a CGL policy from t h e Ap pellant, Acceptance Indemnity Insurance Co. DCM worked o n t he project from January t o October 2006. The entire p roject was completed in August 2007. In October 2 007, Pass Marianne sold the condominiums to Lemon Drop Properties. A year after purchasing the condominiums, Lemon Drop b rought suit in Mississippi state court a g a i n s t i t s s e l l e r , P a ss Marianne, and against Woodward. It sought rescission and a ctual and punitive d a mages for breach o f contract and for gross negligence. Pass M a r i a n n e filed a cross-claim against Woodward alleging faulty c o n s t r u c t i on and damage arising out o f the c onstruction. The claims were eventually a rbitrated. One of the most significant i s sues in the arbitration was the fault of the concrete subcontractor, DCM. Woodward was an additional insured under the C G L policy that Acceptance issued to DCM. After Pass Marianne asserted i ts claims, Woodward

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thr ough counsel demanded on May 6, 2009 that Acceptance provide a defense and indemnity. W o odward sent t o Acceptance the complaint i n the lawsuit and

a report Pass M arianne had commissioned from the Rimkus Consulting Group which stated conclusions about t he nature and effect of the defective work. We later discuss relevant details of the complaint and the Rimkus Report. Acceptance responded by letter on September 11, 2009. It refused to de f e n d Wo o dw a r d b a s ed on language in t he following policy endorsement, which, after identifying Woodward as an additional insured, limited coverage:

A. Section I I – Who is An Insured is amended t o include as an insured the person or o rganization shown i n the Schedule [Woodward], b ut only with respect to liability a rising out of your ongoing operations performed for that insured.
I n summary, the insured was DCM, the concrete subcontractor who is not

n o w a p a rty. The endorsement stated that the general contractor, Woodward (who along with its insurer is t he Appellee here), could draw on the policy issued to DCM by t he Appellant Acceptance “only w ith respect to liability arising out of [DCM’s] ongoing operations performed for that insured,” i.e., Woodward. After quotin g t h e f

o regoing policy language, the letter from Acceptance also stated: Additionally, with respect to the subcontract agreement between [Woodward] and [DCM], based on information presently availab l e to us, the Substantial Completi on of the s ubject property occurred on August 6 , 200 7 , s u b s equent to the policy expiration date. Therefore, we m ust respectfully deny your tender o f defense and indemnity. Though not quoted in the September d enial letter, t he Endorsement t hat made Woodward an additional insured also contained this exclusion:

3 Case: 12-60561 Document: 00512528684 Page: 3 Date Filed: 02/11/2014No. 12-60561 B. W i t h respect to the insurance afforded to the additional insured, the following exclusion is added:
Exclusions This insurance does not apply to “bodily injury” or “property damage” occurring after: (1) All work, including materials, parts o r equipment furnished i n connection with s uch work, on the project

. . . to be performed by or on behalf of the additional insured(s) at the s ite of the covered operations has been completed; . . . .
After Acceptance and other insurers r efused to defend, Woodward and its insurer, Gray I n s urance Company, filed a new suit in October 2 009 in Mississippi state c ircuit court against Acceptance and several other insurers. Woodward and Gray claimed these defendant i n surers failed to defend and indemnify Woodward in the arbitration. The case was r emoved to the United States District C ourt f or the S outhern District of M i s sissippi. By October 2010, all i n s u rers settled except for Acceptance. Woodward, Gray and Acceptance filed motions for summary judgment. The d istrict c ourt held that Acceptance had a duty to defend Woodward. The dis t r i ct court concluded that certain issues could not be resolved on

sum m a r y judgment. Eventually, the district court conducted b oth a jury trial and a bench t r i a l a s to different issues involving the financial burdens arising from the claimed breach of the duty t o defend. The district court entered a final judgment for a total award to Woodward and Gray of $999,144.79. The award

was c omposed o f attorneys’ fees, the costs of arbitration, and extra-contractual damages. Acceptance appealed, and Woodward filed a cross-appeal. This appeal turns solely on th e v alidity of t he district court’s c o nclusion that Acceptance had a duty to defend. We will discuss no other issue.
4 Case: 12-60561 Document: 00512528684 Page: 4 Date Filed: 02/11/2014No. 12-60561 DISCUSSION I. Duty to Defend – Preliminary Points The district court held on summary judgment that Acceptance had a duty to defend Woodward. We give de novo review t o a d i strict court’s grant of
summary judgment, applying the same stand a r d a s did the district court. Buffalo Marine Servs. I nc. v. United States , 663 F.3d 750, 7 5 3 (5th Cir. 2011). We review the district court’s conclusions of law, i ncluding the i n t erpretation of

a contract, de n o v o . In re Liljeberg Enters., Inc. , 304 F.3d 410, 439 (5th Cir. 2002). The parties agree that because Acceptance i ssued the p olicy in Mississ i p p i t o a n a med insured who resided in a nd was a citizen of t hat state,

we are to apply Mississippi rules of construc t i o n t o o ur interpretation of the policy. “The interpretat i o n of an insurance policy is a q uestion of law, not one of fact.” Corban v. Unit e d Se r v s . A u to. Ass’n , 20 S o. 3d 601, 609 (Miss. 2009). We review the district court’s f a c t u a l f i ndings for clear error. Goodrum v. Quarterman , 547 F.3d 249, 255 (5th Cir. 2008). After oral argument, Acceptance raised a n ew issue under t h e policy. It submitted two letters under Federal Rule of Appellate Procedure 28(j) that focus

on whether Pass Marianne’s claims ev e r i d entified a n “occurrence” under the l anguage of this CGL policy. Acceptance did not make that ar g u m e n t a s a specific issue in its briefs. 1 To support that the issue o f “ occurrence” had earlier been briefed, Acceptance, in o ne of its Rule 28(j) letters quoted eight sentences scattered o ver thirteen pages that discuss points relevant to such a n a rgument.

1 Ind icative of w hat w as not brief ed is that neither of the p reced ents relied up on in a recent M is s is s ip p i d ecis ion on this is s ue, to w hich Accep tance alerted us in a Rule 28( j) letter, nor any related op inions , were cited or d is cus s ed in its briefs. See W. R. Berkl ey Corp

. v . Rea ’s Country La ne Const. , Inc. , __ So. 3d

__ 2013 WL 3884909 (Mis s . Ct. Ap p . July 30, 2013)

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Such random and u n f o c u s e d references that d o not cite the r ecord or relevant caselaw are in s u f

f i c i e n t briefing to preserve an issue for our r e view. United States v . Stalnaker , 571 F.3d 428, 439-40 ( 5th Cir. 2 0 0 9 )

. Acceptance waived the issue through inadequate briefing on appeal. F E D

. R. AP P

. P. 28(a)(8)(A).

II. The Complaint and the Policy Under Mississippi law, when determining whether an i nsurer has a duty to defend, courts must overlay the language of t he p o licy with the facts alleged in the complaint. See Auto. Ins. C o. of Hartford v . Lipscomb , 75 S o. 3d 557, 559 (Miss. 2011). No duty arises when the alleged conduct falls outside the policy’s coverage. Id. Pass Marianne was a defen d a n t i n the suit brought by Lemon Drop, making the cross-claim Pass M arianne filed against co-defendant Woo dw a rd the relevant “complaint.” The first part of the cross-claim t hat the parties identify as relevant is Pass Marianne’s allegations of the following facts: (3) Woodward built the foundation p iers in non-conformity with plans and specifications and altered the blueprints in an attempt to cover up this problem;
T h e o n l y other identified section is Pass Marianne’s claim o f a breach o f contract. 2After realleging the foregoing facts, it stated as follows:

C OUNT III. BAD FAITH/BREACH OF CONTRACT ( 4 3 ) [Woodward], independently and through their subcontractor,

2 The elem ents of breach of contract in M is s is s ip pi are: ( 1) the exis tence of a valid and bind ing contract; and ( 2) its breach by the d ef end ant. Bus. C

om m c’ns, Inc

. v . Ba nks , 90 So. 3d 1221, 1224- 25 (M is s . 2012)

. A tortious breach ad d itionally requires an “intentional w rong, ins ult, abus e, or negligence s o gros s as to cons titute an ind ep end ent tort. ” Esel i n- Bul lock & A ssoc. Ins. A

gency, Inc. v . N

a t’l Gen. Ins. Co. , 604 So. 2d 236, 240 (M is s . 1992)

.

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Jim W a llis and S o n Roofing, Inc. intentionally and willfully violated their contractual o bligations to [Pass Marianne] in multiple cost cutting and gouging p l o y s s o as to entitle [Pass Marianne] to damages, to include p unitiv e d a mages due to the malicious and willful nature of said breach. Though P ass M arianne did not mention DCM in this cross-claim, i t did r eference an aspect of the project that was DCM’s operational responsibility. Besides sending the complaint with its letter d emanding t h a t D C M ’s insurer, Acceptance, a nd other insurers provide a defense, Woodward also sent

a report prepared by Rimkus Consulting Group, which was e mpl o y e d by Pass Marianne in the arbitration and litigation. Generally, an insurance company’s duty t o defend a rises o nly if a complaint has been filed that contains allegations of c onduct covered by the policy. Lipscomb , 75 So. 3d at 559. Nonetheless, if an insurer’s independent investigation establishes facts that would p resent a claim “which p otentially would be c overed u nder t he policy, the insurer must provide

a defense u ntil it appears t hat th e f acts upon which liability is predicated f all outside the policy’s coverage.” Id. For our a nalysis, we assume w i thout d e ciding that Lipscomb w ould make the Rimkus R eport relevant for purposes of d etermining w hether Acceptance h a d a d u t y to defend Woodward. The R imkus Report was lengthy. I t s conclusions about concrete subcontractor DCM were that it d i d not comply with the Design/Build Agreement o r industry standards b ecause the atrium floor was not properly sloped, which prevented water from entering the drains properly. The Rimkus Report claimed that DCM failed to comply with the construction drawings and industry standards by not installing a step in the sl a b a t t h e balcony exterior walls a nd doors. This problem allegedly caused damage to the exterior walls o f the c ondominium units. The Rimkus Report a l s o concluded that
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the balcony floors were n o t p r o perly sloped to allow proper drainage and described p r oblems with the finish of the concrete i n the p a r k i ng garage and unsightly trenches that were cut into the concrete to assist with drainage. In summary, Pass Marianne’s cross-cla i m t hat DCM’s work did not conform to specifications was supported by the R imkus Report. T he cross-claim also alleged that the reasons for non-conformance were the i ntentional and willful acts o f the contractor W oodward and a subcontractor. The question for Ac c e p t a n ce, and now for us, is whether those c laims created a duty to defend under this particular policy. We have previously quoted the policy language Woodward relied on in its demand letter, namely, the additional-insured endor s e m e nt. It c ontained two clauses that are relevant to this appeal. Section A provided that Woodward was

an insured, “but only w ith respect to liability a rising out o f y our [DCM’s] ongoing

o p e r a t i ons performed for t h at insured,” Woodward. Second, Section B stated that the policy “does not apply to ‘bodily injury’ or ‘property damage’ occurring after [all work] t o be performed by or on behalf of the a dditional insured(s) at the site of the covered operations has been completed.” Both s ections a ffect t he scope of coverage offered by the additional-insured endorsement. The first section establishes the broad p arameters of the c overage

as m atters “arising out of [DCM’s] ongoing operations.” The sec o n d l i m i t s the
scope of coverage, specifically ex c l u d i ng property damage that o ccurs after all the work at the site of the “covered operations have been completed.” Acceptance d oes not d ispute that t h e p o l i c y is an occurrence policy. An

occurrence policy provides coverage “regardless of when t h e a c t complained of

was discovered or n o t ice provided t o the i nsurer, a s l ong a s t he act occurred during the policy period.” Titan Indem. Co. v. Williams , 743 So. 2d 1020, 1024
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(Miss. Ct. App. 1999). While the plain language of the policy provides c overage only when damages occur during the policy period, there is no textual requirement t hat liability a r i se during ongoing operations, only that liability arise out of ongoing operations. We agree w ith a decision applying Mississippi law that policy language providing coverage for “li ab i l i t y arising out of your work,” requ i r e s o n ly “a c ausal connection to ‘your work.’” Roy Anderson Corp. v. Transcon. Ins. Co. , 358 F. Supp. 2d 553, 562 (S.D. Miss. 2005). In sum, the claim f

or liability need not be alleged during o n g o i ng operations. By t hat we mean that claims need not be asserted during t he named insured’s ongoing o perations to fall w ithin the scope of c overage, but the claims must be causally r elated to the ongoing operations. Royer Homes of Miss., Inc.

v. Chandeleur Homes, Inc. , 857 So. 2d 748, 753 (Miss. 2003). We cannot stop here, though. Besides giving the words their plain and ordinary meaning, our interpretation must give e ffect to e ach clause. Id. The additional- i n s ured endorsement excludes p roperty damage occurring after all w o r k h a s been completed. This provisio n m ust be given e quivalent weight when reading the contract as a whole. We now compare the c omplaint and the policy i n order to a nalyze whether a duty to defend arose.

III. Analysis of Whether a Duty to Defend Arose Mississippi substantive law governs this suit. The meaning of “arising out of [an insured’s] ongoing operatio n s ” is t he phrase in need of interpretation. There is no relevant decision f rom the M i s sissippi S upreme Court, leaving us to predict how that c o u r t w ould decide t he issue. Paz v. Brush Engineered

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Materials, Inc. , 555 F.3d 3 83, 392 ( 5 th C ir. 2009). Mississippi’s i n termediate court has recently addressed the issue. When lacking a r uling from the relevant jurisdiction’s highest court, we will examine dec i sions o f lower courts for persuasive explications of state l aw. See Howe ex rel. Howe v. Sc o t t s d a l e I ns. Co. , 204 F.3d 624, 627 (5th Cir. 2000). The Mississippi Court o f Appeals discussed the meaning of a CGL policy’s additional-insured endorsement limiting coverage to “liability

. . . caused in whole or in part b y [the subcontractor’s] ongoing operations performed for” the additional insured. Noble v . Wellington Assoc. , 2013 WL 6067991 (Miss. Ct. App. Novembe r 1 9, 2013). Noble Real Estate, Inc. h ired a subcontractor, Harris, to pe r f o r m d i r t work and site preparation for a house it w as building. Id. at *1. Noble was l isted as an a d d i t i o n al insured on Harris’s C GL policy, but the endorsement was limited to liability caused by Harris’s “ongoing operations” performed for Noble. Id. Harris completed his work by March 2006, and then Noble built a house on the site. More t h a n a y e a r a n d a half after Harris had completed his w ork, N oble sold the house

. I d

. a t *2. The purchaser noticed cracks in the house and an engineer dete r m i n e d th e r e w e r e f o u n dation problems, partially linked to the fill dirt beneath the slab. Id. The purchaser sued Noble,

w h o i n t urn s ought coverage under Harris’s CGL policy’s additional-insure d endorsement. Id. at *3. The Mississippi C ourt of Appeals interpreted the phrase “ongoing operations” to r efer t o actions “ actually in process,” concluding i t could not encompass “completed operations.” Id. at *4. T h e c o u rt rejected Nobles

a r g ument that the phrase “caused

. . . by [Harris’s] o ngoing operations” w a s a causal limitation to c overage r a ther than t emporal, concluding that

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interpretation would read the word “ongoing” o ut of t he endorsement. I d. at *5. The court determined it was “clear from the language of the endorsement that Noble was only an additional i nsured for liability caused by Harris’s active work

on the site” and “equally clear the endorsement did not cover p roperty damage mani f esting itself after Harris stopped working on the s ite.” Id. The court concluded that if Harris’s performance caused the damage for which Noble was liable, t he caus e w as Harris’s completed work, not its ongoing operations. I d. Accordingly, Harris’s insurer did not owe any c o n t r a ctual duty to defend or indemnify Noble under the terms of the additional-insured endorsement. Id. The Noble decision relied in part o n a Colorado Court of Appeals opinion discussing a similar provision in an insurance p olicy. Id. at *4 (citing Weitz Co., LLC v. Mid-Century Ins. Co., 181 P.3d 309 ( Colo. App. 200 7 ) )

. I n Weitz , five

m o n ths after a subcontractor’s work was complete d , th e p r o p e rty o w n e r ob s e rv e d water intrusion damage and s ued the general contractor. Weitz , 181 P.3d at 310- 11. The general c ontractor later brought suit against the s ubcontractor’s insurance carrier, asserting claims that included bad faith breach of the insurance contract. Id. at 311. The C olorado c o urt c onsidered whether the additional-insured e ndorsement, which extended the subcontractor’s liability coverage to the general contractor o nly a g a i n st liability “arising out of [the subcontractor’s] ongoing operations,” also i n s u r e d th e g e n e r al c ontractor against liability a r i s i n g out of t he subcontractor’s “completed operations.” Id. at 312. With reference t o the p lain meaning of words through d i ctionary d efinitions, the court unpacked the term “ongoing operations” as follows: Neither “ongoing operations” nor “ completed operations” is defined in the p o l i cy. However, “ongoing” is g enerally defined as “that [which] is going on: a: that [which] is actually in p r ocess . . . b: that

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[which] is continuously moving forward.” W ebster’s T

hird N ew International Dictionary 1576 (2002) (Webster’s 2002)

. . . . By contrast, “complete” is g enerally defined as “[b]rought to an e nd or to a final o r intended condition; conclud e d ; c o m pleted; as, t h e edifice i s c om

p l e t e .” Webster’s New International D ictionary 456 (1927) (emphasis in original) (Webster’s 1927)

. . . .

“ O peration” is g enerally defined a s “a doing or performing esp. o f action: WORK, DEED.” Webster’s 2002 , supra , at 1581. The term “operations” as used in the policy is the plural of “operation.”
Id. at 313 (alterations in o riginal; some citations o mit t e d). Because the contractor’s liability for t he water intrusion damage arose out of the subcontractor’s completed operations

– the wor k w a s completed f ive months before the intrusion – rather t han its ongoing operations, t here was no c overage under the additional-insured endorsement. Id. a t 315. We are persuaded by Noble

. Both Noble a nd Weitz support the proposition that claims for liability can be brought after ongoing operations a r e c omplete, but the underlying liability cannot be due to the “completed operations.” Acceptance’s additional-insured e ndorsement uses language limiting c o verage to l i ability arising o ut of o ngoing operations that i s v ery similar t o the language analyzed by the Weitz court. Further, Acceptance’s additional-insured endorsement also includes a specific exclusion f or p rop e rty damage occurring after all work has been completed. We i nterpret this endorsement as a pplying to DCM’s ongoing operations, regardless of when the claim is filed, so long as the liability does not arise out of completed operations. The conclusions drawn here are con c l u s i ons of law. The effect of a contrary conclusion bears noting. Allowing coverage under this e ndorsement because of an allegation that the additional insured failed t o f o l l o w p lans and
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specifications, effectively converts a CGL policy into a performance bond. These two insurance products serve different ends. Mississippi courts have recognized t h a t C G L policies serve limited purposes based on their specific terms an d exclusions. For example, a recent Mississippi Court of Appeals c a s e closely parsed the langu a g e o f a C GL policy, finding t hat it was intended to cover accidental occurrences during construction, not intentional actions undertaken by the i nsured contractor. See W.R. Berkley Corp., v. R ea’s Country Lane Constr. Inc. ,

_ _ So. 3 d __, 2013 WL 3884909 (Miss. Ct. App. July 30, 2013). Consequently, the court r eversed and r endered judgment in favor of the insurer because the c l a i m s did not trigger the d uty to defend. On the other hand, a performance bond is a f orm of insurance that guarantees t he completion of the general contractor ’ s w o rk on the project. See S C O T T C. T U R N E R , I N S U R A N C E C O V E R A G E O F C O N S T R U C T I O N D I S P U T E S § 1:2 (West 2013). This Circuit has
p reviously noted t he significance of the d ifference between these two forms of insurance: “A CGL policy generally protects the i n s u red w h e n his work damages

someone else’s p roperty. The ‘your work’ exclusion prevents a CGL policy from morphing into a p erformance bond covering a n insured’s own wor k

. ” W i lshire Ins. Co. v. RJT Const., LLC, 581 F.3d 222, 226 (5th Cir. 2009). Accordingly, the central issue is whether Woodward’s liabi l i t y a r ose out of D CM’s ongoing operations or its completed operations. This d etermination is governed by the facts alleged in the complaint or, as h ere, in cross-claims. Auto. I n s. Co. of H

artford , 75 So. 3d at 5 59. Liability “arises out of” the p r i m a r y insured’s operations if it i s causal l y connected to the primary insured’s operations. See, e.g. , Mid-Continent Cas. Co. v. Swift Energy C o. , 206 F.3d 487, 497 (5th Cir. 2 000). It is app a r e n t f rom the f

ace of the cross-claim that Pass Marianne’s claims for fraud, defamation, a nd breach of contract did not arise out 13 Case: 12-60561 Document: 00512528684 Page: 13 Date Filed: 02/11/2014No. 12-60561

of DCM’s ongoing operations of work for the condominiu m s . 3 We have previously quot e d Pass Marianne’s relevant claim: “Woodward built the f oundation piers in non-conformity w ith plans and specifications and altered the blueprints in an attempt to cover u p this problem

. . . .” P ass Marianne t hen used these facts to

s u p p o r t a claim that Woodward and a subcontractor other than DCM h a d violated their c ontract w i th P ass Marianne i n an i ntentional and willful m anner, and that the violation caused damages. Pass M arianne’s allegation that the foundation pie r s did not conform to spe c i f i c a tions is a claim of a construction defect. There was not an attendant allegation that the non-conformity caused o ther damage. We will use the term “construction d efects” to mean workmanship not consistent with p lans and specifications. W e d o not include within the term any faulty workmanship in violation of industry standards because the relevant claim here does not allege any such defect. 4 W e h a v e a lready determined that P ass Marianne did not allege that the non-conforming concrete work l e d t o any o ther damages while operations were ongoing. T hough any n o n - c o nforming construction by DCM would have occurred during its ongoing operations, l iability for defective work, such as was alleged here, depends on other policy l a nguage. W e will d iscuss how

3 P as s Marianne’s claim s f or f raud and d e f

am ation aris e f

rom Wood w ard ’s alleged intentional cond uct, not D CM ’s ongoing op erations

. F raud and d ef am ation involve intentional acts w ith no caus al relations hip to the ongoing concrete and cons truction w ork

.

4 O ne of the d ecis i o n s r e l i e d up on by the d is trict court s im p ly f or the p rincip le that unam biguous contracts are cons trued as w ritten, d is cus s es coverage of “f aulty work m ans hip

. ” See A rchi tex A ss’n, Inc. v . Scottsda l e Ins. Co. , 27 So. 3d 1148, 1 1 61 (M is s . 2010)

. The s tate court analyzed w hether p rop erty d am age, if caus ed by f aulty work m ans hip , w ould be covered und er p olicy language requiring an “occurrence. ” I d. We d is cus s ed earlier that Accep tance d id not s uf

f iciently rais e the ques tion of w hether an “occurrence” w as involved here. Thus , the central is s ue in A r c h i tex need not be ad d res s ed in our cas e. There w as no d is cus s ion in A rchi tex of how to ap ply a policy p rovis ion regard ing ongoing op erations

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such liability is assessed. Cou r t s h ave held, q uite logically, that liability for construction defects arises out o f a subcontractor’s completed o perations. See Weitz Co. , 1 81 P.3d at 312 (holding construction defect liability was not covered under additionalinsured endorsement b ecause it a rose out of subcontractor’s completed operations); Absher Const. Co. v. N. Pac. Ins. Co. , 861 F. Supp. 2d 1236, 1250 (W.D. Wash. 2012) (finding that a construction defect, a heating system failure,

was excluded from coverage because it fell o utside the “ongoing operations” clause a nd was also excluded as “completed” w ork). Here, the alleged breach is that the subcontractor did not build the foundation piers according to plans. That is an allegation t hat the completed building did not satisfy the terms of the
p a r t i e s’ contractual agreement. Accordingly, even if Woodward’s liability for Pass Marianne’s breach of contract c l a i m i s related to DCM’s concrete work, Woodward’s liability did not arise out of DCM’s ongoing operations. The breach necessarily arises from the complete d c o n s truction, which is the point in time when Pass Marianne received the completed building. Woodward d isputes this conclusion, a r g u ing that Pass Marianne’s ownership of the property d uring construction means it was damaged regardless of when it received t he completed project. By this logic, a p r oj e c t o w ner could assert a breach of c ontract claim against a contractor for any error made during the course of construction, notwithstanding that t h e contractor m i gh t c o r rect the problem before completing t he project. Rather, the caselaw we have discussed supports that the liability for a construction defect, and any c onsequent breach of contract, is determined after completion. This proposition is also supported by the Mississippi co u r ts’ determination that claims arising from construction defects accrue, for statute of limitations purposes, after the construction project
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has been c ompleted. 5 It f ollows th a t l i a b i lity for construction defects, while created during ongoing operations, legally arises from completed operations. It is t r u e t hat Woodward’s liability for the alleged d a mage i s causally related to DCM’s o perations. Though a causal r elation is required, the policy specifically excludes liability for property damage occurring after al l work has been completed. The damage alleged here arose from completed operations. Woodward a l s o a r gued that Acceptance waived the argument we just discussed, n a m e ly , th a t n o duty to defend Woodward e xisted because liability did not arise out of DCM’s ongoing operations. The evidence relevant to waiver is that in i ts memorandum in support of a partial summary judgment to dismiss all claims of b ad-faith, Acceptance stated t hat the r e l e v a nt d a mage occurred during DCM’s ongoing operations. We examine the memorandum. One relevant secti o n of Acceptance’s summary judgment memorandum

r e f e rs to a different policy e xclusion. It is one denying coverage for damage to the property “on w hich you . . . are performing operations, i f th e ‘ property damage’ arises o ut of those operations; or . . . [t]hat particular part of any property that must b e r estored or r eplaced because ‘your w ork’ was incorrectly perform e d on it.” The memorandum then discusses evidence t hat the construction defects were discovered an d rectified prior to the d ate of substantial

5 The M is s is s ip p i s tatute of lim itation s p e riod f or actions aris ing f

rom cons truction d ef iciencies is s ix years . M I SS

. C ODE AN N

. § 15- 1- 41 (Wes t 2013)

. Courts ap p lying this s tatute have determ ined that claim s accrue af ter the projec t i s c o mp leted , of ten w hen the ow ner or occup ant tak es p os s es s ion. See, e. g. , Rei ch v . Jesco, I nc. , 526 So. 2d 550 (M is s. 1988) (hold ing d ef e c t i v e d es ign and cons truction claim s aris ing f rom the collap s e of a chick en hous e roof accrued when the ow ner began actual us e or occup ancy of the build ing – af ter cons truction w as com p let e d

. ) ; L a m

p ki n v. Thra sh , 81 So. 3d 1193, 1198 (M is s . Ct. Ap p . 2012) (hold ing that breach of w arranty in cons truction of p ers onal res id ence claim accrued on t h e d a t e of occup ancy of the prop erty – af ter cons truction was com p leted ).

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com p l e t i o n . To a pply this language t o t he argument being made o n appeal, namely, that “liability” must arise out of “ ongoing operations,” i s improperly to equate the damagethat the c ross-claim d escribed as being the non-conformity of the work to the plans during ongoing operations with the need that liability arise out of ongoing operations. We have already e x p l a i n e d why t hat liability arises after completion. The other part of Acceptance’s summary judgment memorandum that is said to c o n s t i t ute w aiver is in an argument about the exclusion located in the additional-insured e n dorsement. It excludes, as we quoted in full earlier, coverage f

or any “property damage” that occurs after all wor k h a s b een completed. Acceptance repeats its earlier argument that “most, if not all, of the alleged ‘property damage’” the cr o s s - c l a im asserts is for the non-conformity to plans and specifications that was d iscovered during construction and rectified. Nonetheless, Acceptance also a rgued that if property damage were later discovered, t hen t he additional-insured endorsement would exclude c overage of subsequent damage. Regardless of this supplemental argument, n e i t her the cross-claim nor the Rimkus Report ever identifi e d d a mage relevant to DCM’s work other than the non-conformity to the plans and specifications. We find no inconsistency and no waiver in e ither o f these arguments. Our issue is not whether DCM failed to comply with plans and specifications during ongoing opera t i o n s . T he issue is whether Woodward’s liability a rises out of those ongoing operations. I t did not. W oodward’s liability f or breach of contract, if any, flows from defects in the completed construction project.

CONCLUSION The claims Pass Marianne alleged against Woodward in i ts cross-claim
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and restated in the Rimkus Report did not arise o ut of DCM’s ongoing operations. Even accepting the district court’s factual finding that damage had occurred during o ngoing operations, the only “damage” supported by a llegation i s t h e construction that was not in conformity with plans and specifications. Liability f

or s uch damages arises out of c o mpleted operations, for which Woodward was not an additional insured under the policy. Because Pass Marianne’s claims fell outside the coverage of the additional insured endorsement, Acceptance h ad no d u t y t o defend Woodward. We REVERSE the finding that Acceptance breached its duty to defend a n d t he award of damages, attorneys’ fees, and costs. We REMAND t o the district court for entry of judgment for Acceptance.

18 Case: 12-60561 Document: 00512528684 Page: 18 Date Filed: 02/11/2014