Ohio Supreme Court Rules That CGL Policies Do Not Cover Claims of Defective Construction or Workmanship Brought by a Property Owner
Kegler Brown Construction Alert October 31, 2012
Insurance plays a critical role for construction contractors and subcontractors because it helps them manage the serious risks inherent in construction. Contractors and subcontractors thus have a significant interest in being able to rely on their insurance, for which they paid substantial premiums, to cover risks. In the past decade, the question of whether property damage that arises out of defective or faulty construction work is an “occurrence” of “property damage” under a standard commercial general liability (CGL) policy issued to a construction contractor has been the subject of much litigation.
On October 16, 2012, the Ohio Supreme went against the recent trend of national case law and put Ohio in the MINORITY of states by ruling that claims of defective construction by a property owner are not claims for "property damage" that are covered by a standard CGL policy. See Westfield Ins. Co. v. Custom Agri Systems, Inc., Slip Opinion No. 2012-Ohio-4712 (Ohio Oct. 16, 2012).
With this ruling, Ohio is now with the minority of states that hold that CGL insurers have no duty to defend or indemnify builders for construction defect claims. Writing for the dissent, Supreme Court Justice Pfeifer noted that the “strong recent trend in the case law interprets the term ‘occurrence’ to encompass unanticipated damage to nondefective property resulting from poor workmanship.” Justice Pfeifer stated that, among other things, the decision was too broad and improperly “forecloses too many other potential cases” where the insurance policy should provide coverage, including cases where faulty construction resulted in unintentional damage to other work.
Therefore, until this decision is narrowed (or possibly overturned) when the issue resurfaces in future disputes, construction contractors in Ohio should be aware that the CGL policy they paid for may provide much less coverage than they expect.