May 2018
ASA Urges Ohio Supreme Court to Affirm Appeals Court Decision in CGL Insurance Case and ‘Reverse’ Earlier Court Ruling That Was ‘Wrongly Decided’
Ohio
ASA, Associated General Contractors of Ohio, and Ohio Contractors Association asked the Supreme Court of Ohio to affirm an appeals court decision in a commercial general liability (CGL) insurance case that otherwise could have tremendous negative ramifications for subcontractors in Ohio and beyond.
In an amicus, or “friend-of-the-court,” brief filed in Ohio Northern University v. Charles Construction Services, Inc., and The Cincinnati Insurance Company, ASA, AGC of Ohio and OCA emphasized that “their members have an interest in seeing that the language in commercial general liability policies be given its plain and ordinary meaning, without resorting to the use of judicial interpretation in attempts to alter that plain meaning.”
In the underlying case, Ohio Northern University contracted in 2008 with Charles Construction Services to build a new luxury hotel and conference center on the ONU campus, and most of the project construction work was performed by subcontractors to Charles Construction. In 2011, after construction was complete, ONU discovered evidence of water intrusion and moisture damage to numerous areas of the building. While remediating the problems, ONU discovered serious structural defects which greatly broadened the scope of the remedial work and required completely removing and replacing the brick and masonry façade. ONU sued Charles Construction, who brought in many of its subcontractors.
Charles Construction’s CGL carrier, The Cincinnati Insurance Company, moved for Summary Judgment, citing an earlier case, Westfield Ins. Co. v. Custom Agri Systems, Inc., arguing that Charles Construction’s CGL policy did not provide coverage with respect to any of the damages or claims, and therefore owed no duty to defend and indemnify Charles Construction against ONU’s claims. Cincinnati Insurance grounded its arguments in the Supreme Court of Ohio’s proclamation in Custom Agri 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.” ONU and Charles Construction countered that Custom Agri was not as broad as Cincinnati Insurance claimed and was distinguishable because the “products-completed operations hazard” portion of Charles Construction’s CGL policy applied and that while the “your work” exclusion would exclude coverage for occurrence damages arising out of work performed by Charles Construction, the “subcontractor exception” to the “your work” exclusion would bring the damages in this case within the scope of coverage, as the damages were due to the allegedly defective work of subcontractors of the primary insured.
The trial court agreed with Cincinnati Insurance, finding that Custom Agri specifically applied and not only was there no coverage, the insurer did not even have a duty to defend the claim, because defective construction was not an occurrence under a CGL policy. ONU, claiming the benefits of coverage as an additional insured, and Charles Construction appealed, and the Hancock County Court of Appeals, Third Appellate District, reversed. The appeals court explicitly rejected Cincinnati Insurance’s position that Custom Agri established that “all property damage” regardless of who performed it can as a matter of law never constitute an “occurrence.” Further, the appeals court noted that its decision was consistent with the trend of many other jurisdictions—many of which involved cases in states where ASA has filed “friend-of-the-court” briefs—in addressing disputes with the same question.
In the brief, the amici curiae, arguing that Custom Agri should be overruled, told the Ohio high court, “The [Custom Agri] decision was wrongly decided, defies practical workability, and no undue hardship would occur from abandoning the precedent,” adding, “Ultimately, the Custom Agri holding is inconsistent with the law of other states considering identical policies, and it is inconsistent with Ohio law, as the general holding renders superfluous existing coverage in the CGL policy.” The amici curiae concluded, “The primary argument relied upon by [Cincinnati Insurance] is the broad holding in Custom Agri. However … Custom Agri was not fully briefed by adverse parties. A full review of the law interpreting this universal CGL policy shows that Custom Agri was wrongly decided. It also defies practical workability because it is in opposition to the law of numerous other states, and ultimately, would not work a hardship if it were reversed. …The holding in Custom Agri should be completely reversed.”
Terry W. Posey Jr. of Thompson Hine, LLP, Miamisburg, Ohio, prepared the brief for ASA, AGC of Ohio, and OCA. ASA’s Subcontractors Legal Defense Fund financed the brief. Contributions to the SLDF may be made online.
—American Subcontractors Association
‘Pay-If-Paid’ No Defense to Miller Act Claim
Virginia
“Pay-if-paid” clauses are finding their way into subcontracts with increasing frequency. These clauses tie the subcontractor’s right to payment to the contractor’s receipt of payment from the owner.
Federal projects require the contractor to post a “Miller Act” payment bond guaranteeing timely payment to subcontractors and suppliers.
A recent case out of Virginia has answered the question of whether a “pay-if-paid” clause can defeat or delay a subcontractor’s recovery under a Miller Act payment bond. The Court—in a great victory for subcontractors nationwide—found that a subcontractor can still recover without delay under the bond. So subcontractors on federal work will still be able to timely secure payment—even if the subcontract contained a “pay-if-paid” clause. United States on behalf of Kitchens To Go v. John C. Grimberg Co., Inc., 2017 WL 4698217 (E.D. Va. 2017).
—Donald Gregory, Esq., Kegler, Brown, Hill and Ritter, Columbus, Ohio
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