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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.
The Supreme Court of Ohio recently issued an opinion on the LGR Realty, Inc. v. Frank & London Insurance Agency case that clarifies the statute of limitations on agency negligence.
LGR Realty brought this action alleging that they received an unsatisfactory insurance policy from Frank and London Insurance Agency.
The question that the court answered in this case was when the statute of limitations should begin in an insurance agency negligence claim.
The day the cause of action accrues is the day the statute of limitations begins to run.
In this case, the court decided that the cause of action began on the date the policy was issued, not when the party suffered an injury. Therefore, the case was time-barred.
The Supreme Court of Ohio specifically stated that:
“the delayed-damage rule does not apply to cause of action alleging negligent procurement of professional-liability insurance policy or negligent misrepresentation of the terms of the policy when the policy at issue contains a provision specifically excluding the type of claim the insured alleges it believed was covered by the policy.”
Frank and London Insurance argued that the statute of limitations clock began to run on the date the policy was issued, however, LGR Realty argued that the “delayed-damages” rule applies and the statute of limitations began when Continental Casualty Company, the commercial policy carrier, refused to defend and indemnify.
Under the delayed-damages rule, a cause of action does not accrue until a party suffers an injury, which would have extended the period for LGR Realty to bring this action.
The Supreme Court ruled that the delayed-damages provision does not apply and sided with the trial court to rule in favor of Frank & London Insurance Agency.
Want more information about the case? Check out this video from The Ohio Channel.
CITATION: LGR Realty, Inc. v. Frank & London Ins. Agency, Slip Opinion No. 2018-Ohio-334
Two OIA members recently urged members of the Senate Insurance and Financial Institutions Committee to pass legislation that would require health insurers to release certain aggregate claims information to group plan policyholders.
OIA member Alex Due of Stapleton Insurance Group in Sylvania testified in conjunction with OIA’s Government Affairs Manager Carolyn Mangas. Brian Thompson of the Hummel Group, who is also an OIA member, testified in support of the bill on behalf of the Ohio Association of Health Underwriters (OAHU).
Read full testimony
About the bill
Sponsored by Sen. Matt Huffman (R-Lima), S.B. 227 will provide a solution to a problem that OIA members have brought to our attention over the last several years.
By allowing risk advisors and employers access to claims data, Ohio employers can make better decisions regarding properly assessing health care options to potentially reduce their health care costs.
While this claims data is typically available to employers with 100-plus employees, it is not available to those that fall below this threshold. The lack of this data hinders the ability of risk advisers and employers to pursue additional funding arrangements that have become available in the last several years.
Ultimately, S.B. 227 would empower risk advisors and employers with the ability to better design a health insurance program that balances the level of risk and reward.
Notably, both Louisiana and Texas have similar laws in place to require health insurers to release claims data.
Several others testified in support of S.B. 227 in addition to OIA and OAHU. Opponents of the bill include the association that represents the health insurance companies and the National Multiple Sclerosis Society, who cited concerns that employers could identify employees with serious health conditions and discriminate against them.
To date, S.B. 227 has received three hearings in the Senate Insurance & Financial Institutions Committee.
OIA is working with the OAHU to push for an amendment to the bill so that it will apply to employers with more than 50 employees to alleviate some privacy concerns. OIA will keep members informed as discussions on this legislation continue.
Last week, the Supreme Court of Ohio issued a ruling in an insurance case that called into question whether punitive damages can be awarded in a breach of contract claim.
The case, which involves an insurance agent and Nationwide Insurance, had the potential to change the landscape of not only the insurance industry, but businesses at large in Ohio.
In a 6-1 decision, the Court reversed a judgment of the Seventh District Court of Appeals, clarifying that punitive damages are not recoverable in a breach-of-contract lawsuit. The exception to this rule is if the breach involves a tort, among other clarifications the decision provides to Ohio contract law:
When a breach of contract involves conduct that also constitutes a tort, punitive damages may be awarded only for the tort, not for the breach, and any punitive damages awarded are subject to the statutory limitations on punitive damages imposed in R.C. 2315.21.
A party to a contract does not breach the implied duty of good faith and fair dealing by seeking to enforce the agreement as written or by acting in accordance with its express terms, nor can there be a breach of the implied duty unless a specific obligation imposed by the contract is not met.
An unconditional release of liability becomes effective upon execution and delivery and bars any claims encompassed within it, unless it was procured by fraud, duress, or other wrongful conduct.
A party seeking to avoid a release of liability on the basis that it was procured under duress is required to prove duress by clear and convincing evidence.
The prevention of performance doctrine, which states that a party who prevents another from performing a contractual obligation may not rely on that failure of performance to assert a claim for breach of contract, is not a defense to a release of liability and therefore cannot be asserted as a defense to a release.
A fraud claim cannot be predicated on predictions or projections relating to future performance or on misrepresentations made to third parties.
This is just one of many cases that showcase the important role of the Supreme Court of Ohio. With two of the seven justices up for election this November, you’ll want to pay close attention to this race. Learn why Supreme Court of Ohio races really do matter.
Read more about this ruling in Court News Ohio.
When should the statute of limitations begin on an insurance agency negligence claim?
That’s the question the Supreme Court of Ohio will answer in London Insurance vs. LGR Realty – a case that could have a major impact on the entire insurance industry.
LGR Realty filed a complaint against Frank & London Insurance Agency, an independent agency in Columbus, alleging that they received an unsatisfactory insurance policy.
This allegation arose after a third party filed a claim against LGR Realty and the commercial policy carrier, Continental Casualty Company, refused to defend and indemnify.
Frank & London Insurance argues that the statute of limitations clock began running when the policy was issued. However, LGR Realty argues that it was a “delayed-damages” situation and the statute of limitations clock began when Continental Casualty Company refused to defend or indemnify on the third-party claim.
The trial court ruled in favor of Frank & London Insurance Agency, citing that the case was time-barred. LGR Realty appealed this decision, and the 10th District Court of Appeals overturned the trial court ruling.
Recent Supreme Court of Ohio professional negligence cases have nearly rescinded the court’s decision in Kunz v. Buckeye Union Insurance Co., which approved the delayed-damages rule regarding statute of limitations. However, this decision has not been expressly overruled.
The Supreme Court of Ohio will soon determine whether the delayed-damages rule in Kunz v. Buckeye Union Insurance Co. will remain valid.
LGR Realty’s argument rests on the logic that it is unrealistic to expect a policyholder to know the extent of their coverage until harm is suffered. Therefore, the Court should rule that the statute of limitations began when Continental refused to indemnify LGR when they were sued by a third party.
However, Frank & London Insurance argues that since a cause of action in a professional negligence claim begins when the wrongful act is committed, the statute of limitations in this specific case began when LGR Realty purchased their policy.
Additionally, Frank & London Insurance argues that since the Kunz v. Buckeye Union Insurance Co. case, there have been other professional negligence claims where the court held that the statute of limitations begins when the act is committed, not when the discovery of the tort occurs.
A decision by the Supreme Court of Ohio is expected to be issued soon. Stay tuned for more updates!