November 2018
Ohio Supreme Court Ruling in Favor of Insurance Company in GCL Case Is ‘Disappointing’
by American Subcontractors Association
The Supreme Court of Ohio has ruled in favor of The Cincinnati Insurance Company and reversed an appeals court decision in a commercial general liability insurance case that could have tremendous negative ramifications for subcontractors in Ohio and beyond. The decision is a “disappointing” setback in a case in which ASA, AGC of Ohio and the Ohio Contractors Association filed an amicus, or “friend-of-the-court,” brief urging the Ohio Supreme Court to affirm the appeals court decision. Allen L. Rutz, partner, Vorys, Sater, Seymour and Pease, LLP, Columbus, Ohio, counsel for plaintiff-appellee Ohio Northern University, and Eric Travers, Kegler, Brown, Hill and Ritter, Columbus, Ohio, ASA’s general counsel, both called the decision disappointing.
“The Ohio Supreme Court acknowledges that this decision keeps Ohio swimming against the grain of precedent in other states,” Travers said. “Having swiped aside numerous decisions going the other way from other state courts, they double down in reliance on an Arkansas case that is no longer good law even in Arkansas, because the Arkansas legislature changed the result. The Supreme Court then says if the Ohio Legislature wants to do the same it should, which means ASA and ASA of Ohio have some good incentive here to lobby.”
In their “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.” “It is the custom and practice in the construction industry to rely upon the coverage provided by the plain language of commercial general liability policies for defective workmanship by a subcontractor,” the amici curiae said.
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., Thompson Hine, LLP, Miamisburg, Ohio, and Daniel M. Haymond, Thompson Hine, LLP, Cleveland, 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.
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