Ohio Supreme Court case questions coverage for faulty workmanship

Gavel and scales image

The Ohio Supreme Court heard oral arguments earlier this month in a case regarding the duty of insurers with respect to property damage caused by the defective work of subcontractors.

In Ohio Northern University v. Charles Construction Services, Inc. v. KCL Framing, LLC., et al., the court will decide whether an insurer has a duty to defend and indemnify general contractors against claims that owners suffered property damage due to the defective workmanship of the general contractor’s subcontractors.

Round one: Cincinnati Insurance Company

The trial court in this case granted summary judgment for the insurer, Cincinnati Insurance Company.

Cincinnati argued that their policies do not provide the coverage requested by Charles, specifically for defective workmanship and misrepresentation.

Their argument was based on a 2012 decision in Westfield Ins. Co. v. Custom Agri Systems in which the Ohio Supreme Court ruled that a claim of defective construction or workmanship isn’t a claim for ‘property damage’ caused by an ‘occurrence’ as defined by an industry-standard CGL.

Ultimately, the trial court agreed and found that Cincinnati owed no duty to defend or indemnify Charles against claims of defective workmanship under the CGL policy.

The language in the contract states that the policy kicks in and Cincinnati will pay damages because of property damage which is caused by an occurrence.

The court stated that the CGL does not provide coverage for defective workmanship because that does not constitute an occurrence.

Round two: Reversal

Upon appeal, the Third District Court of Appeals reversed the lower court decision.

They held that the policy is ambiguous as to whether property damage caused by a subcontractor’s faulty workmanship constitutes an occurrence, and if not, whether it was covered under exceptions in the policy.

The court found coverage for “defective workmanship by a subcontractor” under the products-completed clause of the contract.

Impact of the decision

The Ohio Supreme Court is expected to answer the question of whether (and to what extent) an insurer is expected to defend and indemnify a general contractor under a CGL policy for property damage due to defective workmanship by a subcontractor.

It is important to note that the vast majority of states and federal jurisdictions have found that an insurer does have a duty to defend and indemnify a general contractor for property damage claims that arise out of the defective workmanship of a subcontractor.

The makeup of the Ohio Supreme Court is much different than it was six years ago when the 6-1 decision was issued in favor of the insurer in Westfield Ins. Co. v. Custom Agri Systems.

Only two justices who ruled in the majority on that case still sit on the court today: Chief Justice Maureen O’Connor and Justice Terrence O’Donnell.

With this in mind, it will be interesting to see how the current members of the court view this issue and ultimately rule in this latest case to answer the question of whether or not coverage exists for faulty workmanship.

OIA will update you when a decision is issued in this case.