Westfield Ins. Co. v. Custom Agri Sys., Inc.
(Ohio Oct. 16, 2012)
The Ohio Supreme Court finally addressed whether faulty workmanship constitutes an “occurrence” that triggers coverage under a CGL policy, and decided that it does not.
Younglove Construction entered into a contract with PSD Developments, wherein it agreed to construct a feed-manufacturing plant in Sandusky, Ohio. Younglove filed suit in federal court against PSD after PSD withheld payment. In its answer, PSD alleged that it sustained damages as a result of defects in a steel grain bin that had been constructed by Custom Agri Systems, a subcontractor on the project. Younglove, in turn, sued Custom for contribution and indemnity. Custom tendered its defense and indemnity to its CGL insurer, Westfield Insurance Company, who intervened to pursue a judgment declaring that it had no defense or indemnity obligations under the terms of its policy.
Upon deciding cross-motions for summary judgment by Westfield and Custom, the district court acknowledged that it was an open question under Ohio law whether defective-construction claims fall under the auspices of a CGL policy. Rather than decide the issue, the district court assumed that they did and found that a policy exclusion removed the claims from coverage. On appeal, the Sixth Circuit found no controlling precedent on the issue of whether defective construction constitutes an “occurrence.” As a result, the Sixth Circuit certified the following two questions to the Ohio Supreme Court: (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? and (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?
The Ohio Supreme Court agreed to answer both questions. With respect to the first, the court held that claims for faulty workmanship are not fortuitous in the context of a CGL policy and, therefore, do not allege an “occurrence.” Because the court answered the first question in the negative, it found that the second question was moot.