This week, the Court of Appeals of Ohio, Third Appellate District, in a ruling that reversed the Hancock County Court of Common Pleas, issued a welcome ruling for construction participants in the state of Ohio. The court held that the industry-standard Commercial General Liability (CGL) policy purchased by Charles Construction Services, Inc. from Cincinnati Insurance, provided coverage for property damage caused by defective construction or workmanship of the insured’s subcontractors on a project for Ohio Northern University (Ohio Northern).
In its decision, the majority adopted the approach suggested by Ohio Northern and looked first to the grant of coverage, then the exclusions, then the exceptions to the exclusions, emphasizing at least twice that the policy must be read as a whole.
The Appeals Court found it significant that the insurer had charged extra premiums for “products-completed operations” coverage. It then rejected the insurer’s (and trial court’s) interpretation of the Westfield v. Custom-Agri Systems, Inc. case as “too expansive” based on that case’s narrow facts and the facts of the dispute in the Ohio Northern matter.
The Appeals Court noted that the insurer, in attempting to avoid its responsibilities under the CGL policy, did not explain the meaning of certain policy language, stating that “[I]f we were to accept CIC’s position that ‘property damage’ arising after the project is completed, [and] caused by the defective workmanship of the insured’s subcontractor can never constitute an ‘occurrence,’ we would in effect be rendering meaningless these additional and specifically bargained for provisions in the policy,” Decision, ¶36 (emphasis in original).
The Appeals Court noted that under Ohio law “[w]here provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured,” Decision, ¶40. Thus, the majority found the policy provisions “at the very minimum create an ambiguity” whether the policy provided coverage for property damage due to a subcontractor’s faulty workmanship. It concluded that the trial court erred when it held that the insurer had no duty to defend or indemnify the insured contractor against Ohio Northern’s claims.
This case presents the rare situation where virtually all the stakeholders in the construction process, from the owner to contractor to subcontractors, appeared to share a common interest in upholding insurance coverage for the damages in question. It remains to be seen whether Cincinnati Insurance will appeal the decision.