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Ohio Supreme Court Rules That Claims for Defective Workmanship Are Not Covered By A Commercial General Liability Policy

Construction and Surety Alert | November 19, 2012
By: Robert T. Carlton, Jr.

In the recent case of Westfield Insurance Company v. Custom Agri Systems, Inc., 2012 WL 4944305 (Ohio October 16, 2012)  the Supreme Court of Ohio ruled that claims for defective workmanship are not covered by a c­­ontractor’s Commercial General Liability (CGL) policy.

This was a case that grew out of a contract for the construction of a feed-manufacturing plant. PSD Development, LLC (PSD), as owner, contracted with Younglove Construction, LLC (Younglove), as contractor, for the construction of a feed-manufacturing plant in Sandusky, Ohio (the Project). When PSD withheld payment, Younglove sued PSD in the United States District Court for the Northern District of Ohio, for breach of contract. PSD answered and alleged that it had sustained damages as a result of defects in a steel grain bin. The bin had been constructed by Custom Agri Systems, Inc. (Custom),  a subcontractor to Younglove. Younglove filed a third-party complaint against Custom for contribution and indemnity. Custom filed third-party complaints against its subcontractors and demanded that its insurer, Westfield Insurance Company (Westfield) defend and indemnify Custom in the litigation. Westfield intervened and sought a judgment declaring that it did not have any duty to defend and/or indemnify under the terms of its CGL policy with Custom.

Younglove sued Custom on two theories:  defective construction and consequential damages resulting from the defective construction. Westfield and Custom filed cross motions for summary judgment. The district court acknowledged that it was an open question under Ohio law whether defective-construction claims were covered by a CGL policy. But rather than decide that issue, the court assumed such claims were covered but held that a policy exclusion removed such claims from coverage. The court granted summary judgment in Westfield’s favor. Younglove Constr., LLC v. PSD Dev., LLC, 767 F. Supp. 2d 820 (N.D. Ohio 2011). The exclusion provided as follows:

l.  Damage to Your Work

Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”  This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

767 F. Supp. 2d at 822.

Custom appealed to the United States Court of Appeals for the Sixth Circuit. Westfield moved to certify two questions of Ohio state law to the Ohio Supreme Court. The Sixth Circuit granted the motion and certified the following questions, which the Ohio Supreme Court agreed to answer:

(1)    Are claims of defective construction/workmanship brought by a property owner claims for “property damage” caused by an “occurrence” under a commercial general liability policy?

(2)   If such claims are considered “property damage” caused by an “occurrence,” does the contractual liability exclusion in the commercial general liability policy preclude coverage for claims for defective construction/workmanship?

2012 WL 4944305 at * 2.

The court began its analysis by stating the answer to the first question was one of “[C]ontract interpretation, as the issue is whether the claims of defective construction or workmanship against Custom fall within the insurance policy issued by Westfield.” Id.  Among other things, the policy provided the following coverage:


1.       Insuring Agreement

a.       We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

      .           .           .           .            

b.       This insurance applies to “bodily injury” and “property damage” only if:

(1)    The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory;”

                        .          .           .           .                         


                        .           .           .           .

13.  “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

      .           .           .           .

17. “Property damage” means:

a.        Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b.      Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

The court then explained that it “must decide whether Custom’s alleged defective construction and workmanship on the steel grain bin constitute property damage caused by an ‘occurrence.’ ”. Id. at * 4. The policy defined “occurrence” as “an accident, including continuous exposure to substantially the same general harmful conditions.” Id. Because the policy did not define “accident” the court gave “accident” its “natural and commonly accepted meaning.” Id. The court stated that it had defined “ ‘accidental’ as “unexpected, as well as unintended.’ ” Id.

Because claims for faulty workmanship are not accidental or fortuitous, the court held that the CGL did not provide coverage to Custom for its alleged defective construction and workmanship on the steel bin.  The court stated:

In keeping with the spirit of fortuity that is fundamental to insurance coverage, we hold that the CGL policy does not provide coverage to Custom for its alleged defective construction of and workmanship on the steel grain bin … The majority view is that claims of defective construction or workmanship are not claims for “property damage” caused by an “occurrence” under a CGL policy.

Id. at * 5 (citations omitted).

The court did not address the issue of whether consequential property damage, to something other than the insured’s work – e.g., fire damage to a building as a result of defectively installed sprinkler system – would qualify as an “occurrence.” This issue was not before the court because it did not exist under the facts of the case. Finally, because the court answered the first certified question in the negative, “the second certified state-law question is moot … claims of defective construction … are not claims for ‘property damage’ caused by an ‘occurrence’ under a commercial general liability policy. We do not reach the second certified state-law question, as it is unnecessary to do so.”   Id. at * 7.

This is significant because by holding that faulty or defective workmanship is not an “occurrence,” the court never reached the exclusions. Custom alleged that if there was any damage, it arose out of work performed by its subcontractors. The court did not consider the “your work” exclusion and whether the “subcontractor exception” to the “your work” exclusion restored coverage, if the cause of damage to the insured’s work was the operations of the insured’s subcontractors.  

For more information regarding this alert, please contact Robert Carlton (215.764.6275;

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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