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.


BWC cuts Workers' Comp rates, announces $1.5B back to employers

Continued strong investment returns, prudent fiscal management, and falling claims numbers have prompted the Ohio Bureau of Workers’ Compensation (BWC) to recommend another $1.5 billion in premium rebates to Ohio employers this summer, expanding workers' comp savings for employers to $8 billion since 2011.

The rebate, BWC's largest in 20 years, will be voted on at the BWC board's May 24 meeting.

The proposed rebate equals 85 percent of the premiums paid for the policy year that ended June 30, 2017 (calendar year 2016 for public employers).

It would follow $1 billion in rebates issued in 2013, 2014 and 2017, as well as a $15 million rebate in 2016 for counties, cities and other public employers.

Of the proposed $1.5 billion, an estimated $48 million would go to schools and $111 million would go to local government entities. That's on top of $402 million in rebates they have received since 2013 ($125 million for schools, $277 million for others).

With this rebate, BWC will have saved employers $8 billion in workers' compensation costs since 2011 after considering other rebates, credits, greater efficiencies and several rate reductions, including two this year.

If approved, rebate checks will likely be mailed in July and August.

In addition to the rebate, private employers will also see a reduction in their premiums beginning July 1 as a result of a 12 percent reduction approved earlier this year.

The reduction will save private employers $163.5 million on this year's premiums, which are already at their lowest rates in at least 40 years due to a declining number of claims and slow-to-moderate growth in medical inflation.


AmWINS Group opens new Ohio office

AmWINS Group, Inc., the largest independent wholesale distributor of specialty insurance products in the United States, has opened an office in Columbus, Ohio.

The team includes Tiffany Buchs, Amy Szana and Chris DeLozier of the AmWINS Access division and Andy Phillips of the Brokerage division.

The Columbus office joins the current Ohio office locations in Cincinnati, Cleveland and Dayton.

J.B. Civille, Cindy Renske and Andrea Jenkins are in the Cincinnati Brokerage division, Lori Ulbrich and T.C. Canterna are in the Cleveland Brokerage division, Angel Lightcap-Grisez is in the Dayton Brokerage division, and Rhonda Goines is in the Dayton Access division.

AmWINS Access is a nationwide delegated-authority business focused on small commercial property and casualty, and personal lines. AmWINS Access provides the capabilities and market access of the largest P&C wholesaler in the United States, combined with local underwriting expertise, industry-leading technology, and access to a wide range of binding authority markets and exclusive products.

AmWINS Brokerage is the largest specialty distributor of property, casualty and professional lines insurance products. Our sales professionals are strategically located throughout the United States to service retail agents with innovative excess & surplus (E&S) lines and specialty insurance solutions.

AmWINS Group, Inc. is dedicated to serving retail insurance agents by providing property and casualty products, specialty group benefit products and administrative services. Based in Charlotte, N.C., the company operates through more than 100 offices globally and handles premium placements in excess of $14 billion dollars annually.


Western Reserve Group hires Galonski as VP of Claims

William Galonski of Western Reserve GroupKevin W. Day, President and CEO of Western Reserve Group (WRG), 1685 Cleveland Rd., Wooster, Ohio, announced that William Galonski has joined as Vice President of Claims and a member of the Operating Committee.

“William brings a depth of Claims leadership and acumen to WRG. He is an excellent fit for our corporate culture.” said Day.

William has served in several claims roles at Grange Insurance most recently as Assistant Vice President – Property Claims & SIU. He began his 15 year tenure with Grange in 2003 as Claims Representative and then Field Property Specialist. William served from 2006 – 2014 as Manager of Property Claims & SIU before his promotion to Assistant Vice President in 2014.

William started his career in Claims in 1999 as a Claims Representative with State Auto Insurance. He is a graduate of The Ohio State University and has the following insurance designations: CPCU, ARM, AIC, and AU.

He grew up in Northeast Ohio where his parents still reside, is an avid basketball fan and still plays, and has a special passion for supporting the fight against cancer.


Iroquois adds regional manager in Ohio and Kentucky

Mike Humphry Iroquois GroupMike Humphry has joined The Iroquois Group’s Mid-Atlantic team as a regional manager for southern Ohio and Kentucky.

Humphry’s insurance career, which began in 1980, has included experience in both the independent agency and exclusive agency distribution systems.  Prior to joining Iroquois, Humphry worked with Grange Insurance and Nationwide, serving in various roles in sales, marketing, underwriting, and operations.  Throughout his career, Mike has worked as a trusted advisor to agents helping them achieve profitable growth.

Iroquois Mid-Atlantic is part of The Iroquois Group®, serving member agencies in eight Mid-Atlantic states plus the District of Columbia. Agencies of all sizes and shapes join Iroquois to increase revenue, profits and agency value – without giving up their independence. For more information, go online to www.iroquoisgroup.com

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