State Supreme Court Rules that CGL Policies Do Not Cover Faulty Subcontractor Work

Filed in Legal by on October 10, 2018 0 Comments

The Thomas J. Moyer Ohio Judicial Center in Columbus.

In a case the home building industry was watching closely, the Ohio Supreme Court on Oct. 9 ruled that a commercial general liability (CGL) policy, even with a products-completed operations-hazard clause, does not cover faulty work performed by a subcontractor that results in property damage.

The decision reversed a Third District Court of Appeals ruling that an insurer has a duty to defend and indemnify a contractor against claims made by a project owner for property damage allegedly resulting from defective work performed by the contractor’s subcontractors.

The case, Ohio Northern University v. Charles Construction Services, Inc., arose in connection with damages to a hotel constructed on the campus of Ohio Northern University.  After the building was completed, ONU found water intrusion and moisture damage in the interior. When remediating the water damage, the university found additional serious structural defects.

In finding for the insurer, the Ohio Supreme Court ruled that property damage caused by a subcontractor’s faulty work is not fortuitous and does not meet the definition of an “occurrence,” which is defined under a CGL policy as “an accident.” Instead, the chances that a subcontractor’s work might be faulty is a “business risk,” and the insurance policy did not cover those, the opinion concluded.

The court offered that if it were so inclined, the Ohio General Assembly could define the term “occurrence” to include “property damage resulting from faulty workmanship.”

NAHB joined the Ohio Home Builders Association in filing an amicus brief in the case.

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