The Importance of Careful Coverage Analysis

Construction and Procurement Law News, Q2 2017

Client Alert


Ohio has joined the majority of jurisdictions in holding that a general liability policy may provide coverage for claims made by a project owner for property damage allegedly caused by the defective work of a subcontractor. In Ohio Northern Univ. v. Charles Constr. Serv., Inc., an Ohio appeals court found coverage. It distinguished a 2012 decision of the Ohio Supreme Court, Westfield Ins. Co. v. Custom Agri Systems, Inc. that seemed to hold, broadly, that “claims of defective construction or workmanship brought by a property owner are not claims for ‘property damage’ caused by an ‘occurrence’ under a commercial general liability policy.” A close comparison of the two cases reveals their consistency and demonstrates that the “devil is in the details” of any coverage analysis.

Coverage for Defective Work

Most commercial general liability policies are written on standardized forms developed by the Insurance Services Offices. The standard general liability policy provides that it applies to “property damage” caused by an “occurrence.” Whether faulty or defective workmanship constitutes an “occurrence” under the general liability policy is a state specific question, and courts across the country are divided on this issue. While some states have held that faulty workmanship or improper construction is not an “occurrence” because it can never be an “accident,” others have held that faulty workmanship can be an “accident” if the resulting damage occurs without the insured’s expectation or foresight. The recent trend has been for courts to find that construction defects or faulty workmanship satisfy the “occurrence” and “property damage” requirements under a general liability policy, and that losses sustained as a result of such defects may be covered.

The Ohio Cases

Ohio Northern University (the “Owner”) contracted with Charles Construction Services, Inc. (the “Contractor”) to build a luxury hotel and conference center on the Ohio Northern campus (the “Project”). The Contractor subcontracted most of the work to various trade and supplier subcontractors. After construction was complete, the Owner discovered evidence of water intrusion and moisture damage to wall coverings, dry wall, and insulation. Remediation of the damage led to the discovery of additional structural defects.

The Owner sued the Contractor, who, in turn, filed claims against its subcontractors. The Contractor’s insurer, The Cincinnati Insurance Company (the “Insurer”), intervened in the lawsuit and sought a declaration that it had no obligation to defend or indemnify the Contractor. In a motion for summary judgment, the insurer relied on the Ohio Supreme Court’s decision in Custom Agri to support its claim that it had no duty to defend or indemnify the Contractor. The trial court held in favor of the insurer holding that, under Custom Agri, defective construction was not an occurrence and, therefore, that there was no coverage.

On appeal, the Court of Appeals explicitly rejected the Insurer’s argument that Custom Agri stood for the “expansive proposition that all claims for defective workmanship, regardless of who performed it, are barred from coverage under a [general liability] policy because such claims” can never constitute a claim for “property damage” caused by an “occurrence” under a general liability policy. The Court of Appeals noted that, unlike Custom Agri, the property damage sustained by Ohio Northern was caused by the defective work of subcontractors, not by the work of the insured Contractor. Moreover, the property damage occurred after the project was completed. Thus, the property damage was within the “Products-Completed Operations Hazard,” and the insured Contractor had paid supplemental premiums to obtain “Products-Completed Operations Hazard” coverage. In considering each of these facts, the Court of Appeals reversed the trial court’s entry of summary judgment for the Insurer.


Comparison of these two Ohio cases demonstrates the necessity of conducting a close review of the facts and procedural posture of any coverage case to identify possible bases for establishing coverage.