Ohio Supreme Court Says Subcontractor Defective Work is not a CGL-Covered Occurrence

On October 9, 2018, the Ohio Supreme Court ruled that property damage caused by a subcontractor’s faulty work is not covered under standard commercial general liability (CGL) policies.

In Ohio N. Univ. v. Charles Constr. Servs., Inc., Slip Opinion No. 2018-Ohio-4057, the question before the Court was whether a general contractor’s CGL policy covered claims for property damage caused by a subcontractor’s faulty work. The insurer argued defective construction was not a covered “occurrence” as interpreted by the Ohio Supreme Court in Westfield Ins. Co. v. Custom Agri Systems, Inc. The Court agreed and found that property damage claims resulting from any defective construction—performed by the general or subcontractor—are not unexpected accidents and, thus, not “occurrences.” Instead, the Court ruled the defective work of a policy-holding general contractor or its subcontractor is an uninsurable business risk and normal consequence of doing business in the industry.

This decision largely follows the Ohio Supreme Court precedent from Custom Agri and brings clarity to the Ohio construction industry. For policyholders, this case may create risk on Ohio projects previously not anticipated. Ohio joins states in the region such as Pennsylvania and Kentucky whose supreme courts have specifically ruled against coverage.

The Court, however, took the minority approach that differs from most state supreme court interpretations of CGL policies that find coverage for claims against subcontractor defective work. To date, 23 other state supreme courts have found that CGL policies cover the defective work performed by a policyholder’s subcontractor. This includes states in the Midwest such as West Virginia, Tennessee, Indiana, Wisconsin, and Iowa.

For more information, contact Pat Devine, Christian Robertson or another member of our Construction Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.