Ohio Northern University v. Charles Construction Services, Inc.
Issue Discussed: Insurance Coverage – Occurrence Issues
Submitted by Ann E. Halden
Date Promulgated: October 9, 2018
Case: Ohio Northern University v. Charles Construction Services, Inc. 2018 WL 4926159 (Ohio Oct. 9, 2018)
Issue Discussed: Coverage for faulty workmanship by a subcontractor under a CGL policy.
Court: Supreme Court of Ohio
Date Decided: October 9, 2018
Issues Decided: Whether faulty workmanship by a subcontractor constitutes an occurrence under a CGL policy.
Submitted by: Ann E. Halden[1]
An insurer filed a declaratory judgment action requesting a ruling that it did not have to defend or indemnify its insured under a CGL policy for damage that was the result of faulty work by a subcontractor. On appeal, the Ohio Supreme Court considered the case in light of its 2012 decision in Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St. 3d 476 (2012). The policy at issue in Custom Agri. defined an occurrence as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions” and “accident” was not defined in the policy. Considering the language of the policy, the court in Custom Agri. held that property damage caused by a contractor’s own faulty work was not “fortuitous” and therefore not covered under the CGL policy. The issue in Ohio Northern was whether this ruling extended to a claim under a similar CGL policy for a subcontractor’s work.
Like the policy in Custom Agri., the policy at issue in Ohio Northern provided coverage “only if” the “‘bodily injury’ or ‘property damage’ [was] caused by an occurrence.” “Occurrence” was defined in the CGL policy as “[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Accident” was not defined in the policy. The policy further included a products-completed operations-hazard (PCOH) clause and an exception to the exclusion for property damage to “your work” when that work was performed by a subcontractor. While the court noted that there was “no question” that the damage at issue was “property damage,” it further noted that under the terms of the policy, “unless there was an ‘occurrence,’ the PCOH and subcontractor language has no effect.” Thus, while acknowledging that its reasoning appeared contrary to the trends in other jurisdictions, the Ohio Supreme Court followed its prior decision in Custom Agri. and held that “property damage caused by a subcontractor’s faulty work is not an “occurrence” under a CGL policy because it cannot be deemed fortuitous. Hence, the insurer is not required to defend the CGL policy holder against a suit by the property owner or indemnify the insured against damage caused by the insured’s subcontractor.”
[1] Ann E. Halden is Special Counsel at Mound Cotton Wollan & Greengrass LLP focusing on reinsurance litigation and arbitration.
