Advertising Disclosure Email Disclosure

Legal Updates for Coverage and Bad Faith

March 20, 2019
Presented by the Insurance Coverage/ Bad Faith Litigation Group

Edited by Allison L. Krupp, Esq.

Ohio Supreme Court Holds That General Contractor’s CGL Insurer Is Not Obligated to Defend Suit Alleging Subcontractor’s Faulty Workmanship  

By David J. Fagnilli, Esq.


In Ohio N. Univ. v. Charles Constr. Servs., Inc., 2018 Ohio 4057, the Ohio Supreme Court revisited, affirmed and applied its earlier decision in Westfield Ins. Co. v. Custom Agri Systems, Inc., 133 Ohio St.3d 476, holding that an “[i]nsurer is not required to defend a commercial-general-liability policyholder against [a] suit by [a] property owner, because subcontractor faulty workmanship is not fortuitous.” The plaintiff, Ohio Northern University (ONU), contracted with Charles Construction to build an inn and conference center. After the work was completed, ONU discovered extensive water damage as a result of leaks, believed to be caused by poor workmanship performed by a subcontractor. ONU sued Charles Construction, and Charles Construction tendered its defense to its CGL insurer, Cincinnati Insurance Company (CIC). CIC intervened and argued that it was not obligated to defend or indemnify Charles Construction because the claims did not arise out of an occurrence as defined by the policy.

The trial court ruled in CIC’s favor based on the Ohio Supreme Court decision in Westfield v. Custom Agri, finding no occurrence when the claim is based on alleged faulty workmanship. Charles Construction and ONU appealed, and the 3rd District Court of Appeals took a narrower view, acknowledging that Westfield v. Custom Agri was good law, but finding that the trial court had failed to address products and completed operations coverage, and the subcontractor’s work exception to the work product exclusion. CIC appealed to the Ohio Supreme Court, and the high court reinstated the trial court decision, finding no coverage because there was no occurrence. The court reasoned that faulty workmanship, even by a subcontractor, is a business risk and, therefore, was not accidental, was not fortuitous and did not arise out of an occurrence. “There is no question that the damage to the inn was ‘property damage’ that was discovered after work was completed. But without an ‘occurrence’ as defined in the CGL policy, there is no coverage for any property damage.” The court rejected the argument that the products and completed operations coverage was an additional coverage for which an additional premium was paid and that it was intended to cover claims such as these.

This case has raised a great deal of consternation in the construction industry and among  independent insurance agents. Many agents had long thought that CGL policies with products and completed operations coverage would protect a general contractor from claims based on a subcontractor’s faulty workmanship. The addition of the subcontractor exception to the work product exclusion led many agents to believe that these types of claims would be covered. Based on this decision, these claims are not covered. Agents and contractors are reevaluating their options to determine what they can do to obtain coverage for this risk.

 

The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive these complimentary Coverage and Bad Faith updates, please contact alkrupp@mdwcg.com. If however you continue to receive the alerts in error, please send a note to alkrupp@mdwcg.com.

ATTORNEY ADVERTISING pursuant to New York RPC 7.1
© 2019 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.

 

 

Affiliated Attorney

Allison L. Krupp
Shareholder
(717) 651-3510
alkrupp@mdwcg.com
David J. Fagnilli
Shareholder
(216) 912-3792
djfagnilli@mdwcg.com

Practice Areas

Before you send this email please note:

You are attempting to send email, through a link on our website, to an attorney of Marshall Dennehey Warner Coleman & Goggin or an employee in our firm. Please note that your email may not be treated as confidential and does not create an attorney-client relationship. You should not rely upon the transmission of an email through this website if you are seeking to enter into such a relationship. Until such time as we have agreed to represent you, no information in your email will be treated as confidential. Please contact us directly by telephone at 1.800.220.3308 if it is your intent to seek legal counsel with our firm or convey confidential information.

If it is still your intent to send this email, knowing that it may not be treated as confidential, you may accept our terms of agreement by pressing "OK". If you choose not to accept these terms of agreement you may navigate away from this page by pressing "Cancel."