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(Article from Insurance Law Alert, October 2018)

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The Ohio Supreme Court ruled that a general contractor’s liability policy does not cover claims arising out of a subcontractor’s faulty work because such claims did not arise from a covered “occurrence.”  Ohio Northern Univ. v. Charles Construction Svs., 2018 WL 4926159 (Oct. 9, 2018).

A general contractor was sued after it was discovered that defective work performed by a subcontractor resulted in extensive water damage.  The contractor sought coverage from its general liability insurer, which defended under a reservation of rights.  The insurer later filed suit seeking a declaration that defective workmanship claims were not claims for property damage “caused by an occurrence.”  The trial court ruled in the insurer’s favor, citing Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476  (2012), which held that damage caused by a contractor’s own faulty workmanship does not give rise to a covered occurrence.  An intermediate appellate court reversed, finding that Agri applied only to claims involving the contractor’s own work and that the policy was ambiguous as to whether it encompassed claims based on a subcontractor’s faulty work. 

The Ohio Supreme Court reversed, holding that Agri applied with equal force to claims based on a subcontractor’s workmanship.  The court further held that even though the damage was discovered after the construction work was completed, coverage was not restored by a Products Completed Operations Hazard exception or a subcontractor exception to a “Your Work” exclusion because there was no covered occurrence in the first place.  The court noted that courts in other jurisdictions have deemed subcontractor claims to be covered by a completed operations or subcontractor exception, but emphasized that its decision was based on “the plain and ordinary meaning of the language used in the CGL policy” rather than “any trend in the law.”