We begin this month with a look at an Ohio Supreme Court case that should look familiar, as we discussed the Court of Appeals decision in December of 2005. The issue before both courts was whether property had been “taken” by the government when the Clark County Board of Zoning Appeals refused to issue a conditional use permit for extracting sand and gravel. Our next case, from the Court of Appeals for Stark County, Ohio, is the second appearance of a dispute we reviewed in October of 2005; this incarnation looks at possible coverage for an allegedly negligent contractor listed as an “additional insured” on the policy issued to its subcontractor. The same issue is the focus of our third case, this one a federal decision from the Northern District of Ohio. Finally, we conclude with a decision from the Court of Appeals for Franklin County, Ohio, examining the evidence behind a VSSR, a “Violation of a Specific Safety Requirement” that entitles an injured worker to additional workers’ compensation benefits.

Ohio Supreme Court Agrees: Refusal To Grant Conditional Use Permit Doesn’t Equal Compensable “Taking”

We covered the dispute in our December 2005 column, when the Court of Appeals for Clark County ruled that a refusal to grant a conditional use permit was not a compensable “taking.” Earlier this month, in a 5-2 opinion, the Ohio Supreme Court agreed in State ex rel. Shelly Materials, Inc. v. Clark County Board of Commissioners, 2007-Ohio-5022.

Nearly 10 years ago, Shelly purchased more than 300 acres of land in Clark County. The plan was to extract sand and gravel from the property for 20 years, gradually converting it into a low-density, single-family, residential community. Unfortunately, this plan came to a screeching halt before it even got started. Because the property was zoned “A-1 Agricultural,” Shelly was required to obtain a conditional use permit for its mineral extraction business.

When the Clark County Board of Zoning Appeals denied Shelly’s application for a conditional use permit, both the trial and appellate courts in Clark County affirmed this denial. Shelly tried several litigation maneuvers, all unsuccessful. Eventually, it wound up before the Ohio Supreme Court on an appeal of the appellate ruling we reported in December of 2005. In it, the Court of Appeals had upheld the constitutionality of the zoning ordinance and rejected Shelly’s takings claim because the property retained some economically viable uses.

The simple issue addressed by the Supreme Court involved the question of what was the proper “parcel” for review in a takings analysis—the 300 acres as a whole, or only the mineral rights (the right to extract sand and gravel from the 300 acres)? Shelly argued that the mineral rights were severable, and that the denial of a conditional use permit had effected a “total taking” of those rights.

The Supreme Court disagreed, concluding that a mineral estate can only “be considered the relevant parcel for a compensable regulatory taking if the mineral estate was purchased separately from the other interests in the real property.” In essence, unless the right to extract minerals was created by “deed, grant, lease, reservation, or exception,” the “property should be considered as a whole.”

In order to reach this conclusion, the Court had to distinguish its 2002 holding in State ex rel. R.T.G., Inc. v. State, 98 Ohio St.3d 1. That case held that the relevant parcel in a takings analysis can be a mineral estate if the owner “purchase[d] the property for the purposes of mining.”

Refusing to overrule R.T.G., the Court instead chose to distinguish it from the case at hand by focusing on the “unique circumstances” of the earlier case. In R.T.G., the coal mining company had “purchased land coal leases” expressly providing them with a mineral estate separate from the rest of the property. Shelly’s purchase was different, as its 300 acres were acquired in “fee simple title,” with no separate mineral rights.

As a result, the entire 300 acres, rather than the right to extract sand and gravel from the 300 acres, proved to be the relevant parcel for the takings analysis.

So Shelly needed to prove that the property had no “economically viable use.” The Court, however, agreed with the appellate court that the conditional use permit did not deny Shelly “all economically viable use of its property.” For example, as the appellate court noted, the property could be used for an outdoor recreation area, school, hospital, or bed and breakfast. As long as there were some economically viable uses of its land, Shelly did not suffer a compensable taking. It lost yet another court battle.

A strong dissenting opinion by Justice Pfeifer (joined in part by Justice Lundberg Stratton) left the decision far from unanimous. Pointing out the great lengths the majority used to distinguish R.T.G., the dissent argued that the majority opinion actually overruled that 2002 case. The dissent felt that the majority should have sent the case back to the Court of Appeals to allow Shelly to raise a “partial” takings claim.

The moral of the story remains what we said it was when we reported the Court of Appeals decision, and it is a spin-off of the ancient adage, “Don’t count your chickens before they are hatched.” Don’t count on receiving a conditional permit when you purchase property. Before you place any money down on a property, make sure the land has value to you even if the permit is denied. Otherwise, you can look forward to a long legal battle that may, in the end, be a losing one.

Contractor’s Negligence Didn’t Trigger “Additional Insured” Coverage

Under Subcontractor’s Policy Subcontractors are frequently required to name general contractors as additional insureds under the subcontractors’ insurance coverage. Does this coverage extend to injuries caused by the general contractor’s negligence? This was the question before the Ohio Court of Appeals for Stark County in Tingler v. C.J. Mahan Construction Co. (2007), 2007-Ohio-5463.

This was the second time the court reviewed a case involving the same project where Mahan was the general contractor for a bridge reconstruction project in Canton. The earlier decision, which we summarized in October 2005, dealt with enforcement of an indemnification provision and whether the general contractor could withhold payment from the subcontractor for refusing to indemnify it.

Tingler’s employer, Mohawk Re-Bar Services, Inc., was the subcontractor installing the rebar. The subcontract stated that Mahan would provide a crane and a crane operator for Mohawk’s use in performing its work.

Two Mohawk employees were electrocuted when the crane, operated by a Mahan employee, touched an overhead wire during the rebar installation. The injured employees sued both Mahan and Mohawk for negligence.

The subcontract contained an indemnification provision requiring Mohawk to indemnify Mahan “from any and all actions, lawsuits, claims, costs, loss, damage, or liability of any kind or nature, . . . when such liability results from or on account of any act or omission of Subcontractor or . . . the joint or concurrent acts of [Mahan] . . . .” When Mahan demanded that Mohawk defend it in the action, the subcontractor refused.

Both Mahan and Mohawk subsequently settled with the injured employees. Relying upon the indemnification provision in the contract, Mahan issued a deduct change order to Mohawk for the additional insurance premiums it expected to pay as a result of Mohawk’s failure to indemnify it. Mohawk filed a separate suit for payment.

The suit filed by Mohawk was the subject of the first review by the court, C.J.Mahan Construction Co. v. Mohawk Re-Bar Services (2005), 2005-Ohio-5427. (We will call this “Mahan I.”) In that case, the court found that the indemnification provision requiring Mohawk to indemnify Mahan against Mahan’s own negligence was void as against public policy. Thus, Mohawk did not have to indemnify Mahan. Additionally, it held that Ohio’s Prompt Payment Act prohibited Mahan from withholding payment from Mohawk based on a dispute that did not arise from a “claim involving the work.”

When the employees settled, they dismissed their claims against the two companies. However, the lawsuit continued because Mahan had filed a counterclaim against Cincinnati Insurance (Mohawk’s insurer) in the employees’ suit (“Mahan II”), alleging that Cincinnati breached its contract when it failed to provide Mahan a defense as an additional insured.

After the court’s ruling in Mahan I, Mahan asked the trial court to rule in its favor and against Cincinnati without a trial in Mahan II. The trial court denied the request, and Mahan appealed.

Mahan argued that the clear and unambiguous language of the policy required Cincinnati to defend Mahan. The language of the policy contained the following:

4. COVERAGES (Section I) is amended to include: The insurance provided to the additional insured does not apply to ‘bodily injury’, ‘property damage’, ‘personal injury’, or ‘advertising injury’ arising out of the . . . b. sole negligence or willful misconduct of, or for defects in design furnished by, the additional insured or its employees.

The court looked to the decision it made in Mahan I to address the argument. In Mahan I, the court found that the additional insured endorsement covered only liabilities arising out of Mohawk’s work for Mahan. Since the underlying litigation involved only allegations of Mahan’s own actions and not Mohawk’s actions “arising out of their work for Mahan,” the additional insured coverage did not apply.

Turning back to Mahan II, Mahan argued that it was possible that some independent action by Mohawk, such as directing the location of the crane, caused damage to Mahan, triggering Cincinnati’s duty to defend Mahan. The court did not agree. Based on its decision in Mahan I and the “clear reading” of the endorsement, the additional insured coverage did not give rise to a duty of Cincinnati to defend Mahan.

So contractors should be forewarned not to rely on their status as additional insureds on their subcontractors’ insurance policies—at least not when the reason they need coverage stems from their own actions and not from the actions of their subcontractors.

Federal Court Looks at Same Issue, Agrees Policy Doesn’t Cover Additional Insured’s Negligence

As we saw in the previous case, construction contracts frequently include insurance provisions such as automobile liability insurance, general liability insurance, workers’ compensation insurance, and property damage coverage. Depending upon the wording of the insurance provisions, they can provide protection to any of the various parties involved with a construction project.

The specific language of each insurance provision is extremely important, as it defines who must be protected and the types of protection that must be provided. The interpretation of the insurance language was the critical issue in Cincinnati Insurance Company v. St. Paul Protective Insurance Company (N.D. Ohio Sept. 28, 2007), 2007 U.S. Dist LEXIS 75465.

Tri-C Construction Company entered into a contract to build an Aldi grocery store and a subcontract with Sawyer Steel to serve as the steel erector. The terms of the subcontract required Sawyer Steel to provide specific insurance coverage, include Tri-C as an dditional insured, and “indemnify, defend and save Tri-C harmless from all claims of any nature whatsoever for damages either to person or property arising out of the carrying on of all work,” according to the court. Sawyer Steel provided the required coverage.

When the steel erection had just started, an employee for Sawyer Steel fell over 16 feet to the ground. Approximately seven weeks later, the employee died from his injuries.

A survival and wrongful death action was brought by the employee’s wife and son against Tri-C, Sawyer Steel, and others. Tri-C requested Sawyer Steel’s insurance carrier, St. Paul Protective Insurance Company, to provide a defense for and indemnify Tri-C. St. Paul, however, refused the request.

Tri-C, through its insurance carrier Cincinnati Insurance Company, settled the claims brought against it by the deceased employee’s family. Tri-C then assigned to Cincinnati Insurance all of its rights to litigation against St. Paul.

Cincinnati Insurance sued St. Paul to collect all attorneys’ fees, defense costs, and settlement costs incurred in the wrongful death action. The question before the court was “whether [St. Paul] breached the terms of the insurance contract that required [Sawyer Steel] to protect Tri-C from damages to persons or property arising out of or resulting from the performance of the subcontract agreement.”

After reviewing the policy, the court determined that the policy endorsement defined the scope of the coverage in two ways. “First, the policy expressly limits its coverage to liability arising out of the subcontract agreement. Second, the contract expressly excludes coverage for covered injury unless it arose from [Sawyer Steel’s] work for Tri-C.”

Where Tri-C was sued for its own negligent acts, there would be no coverage for an additional insured. Tri-C could enforce the policy only for Sawyer Steel’s work arising under the subcontract agreement. Cincinnati Insurance, as a result, was not able to recover the costs and expenses that resulted from the previous settlement.

Looking at the previous case, we can see that Cincinnati Insurance was less successful in federal court than it was in state court. Both courts agreed, however, on the main principle: The policy language controls, and if it limits coverage to damages arising from the subcontract, it will not cover damages caused by the contractor’s own negligence.

Court Affirms Contractor Liability For Defective Backup Alarm

After a tragic accident that killed one of its employees, a highway contractor learned some tough lessons. The decision in State ex rel. The Shelly Co. v. Steigerwald (Franklin App. October 4, 2007), 2007- Ohio-5343, shows how multiple investigations that reveal the same facts do not always lead investigators to the same conclusions.

The accident occurred when a worker was struck and killed by a Ford F450 service truck that was backing down a closed driving lane. After the tragedy, the Occupational Safety and Health Administration, the Ohio State Highway Patrol, the employer, and the Industrial Commission of Ohio all investigated separately to determine the cause of the accident.

Each investigation looked into whether the truck was equipped with the proper warning device, i.e., a backup alarm, and whether the device was working properly. Each investigation revealed that the truck’s backup alarm was not working immediately following the accident.

OSHA did not issue a citation to the contractor, however, because it found that the backup alarm was working just before the accident. OSHA found that the “vehicle apparently had a backup alarm that was by every indication working (but confirmed by no one).”

With the results of several investigations, the wife of the deceased employee filed a claim for a violation of a specific safety requirement, or VSSR, with the Ohio Industrial Commission. Such a claim entitles a worker injured due to an employer’s violation to receive more compensation than would ordinarily be due under workers’ compensation. This claim prompted another investigation, this time by the Ohio Bureau of Workers’ Compensation Safety Violations Investigation Unit. This investigation revealed essentially the same facts as the others.

A staff hearing officer considered the violation of a specific safety requirement. The issue was whether the employer violated Ohio Administrative Code Section 4123:1-3-06(D)(2)(a) and (b):

(2) On mobile equipment having an obstructed view to the rear, the employer shall:

(a) Provide a reverse signal alarm audible above the surrounding noise, or

(b) Provide an observer to signal the assured distance.

The staff hearing officer listened to the arguments and reviewed the Safety Violations Investigation Unit’s report, which included records and transcripts from all the previous investigations. The hearing officer determined the backup alarm was not working just before the accident and found the contractor liable for violating a specific safety requirement. This outcome was contrary to OSHA’s findings.

Not happy with the result, the contractor then filed a mandamus action with Ohio’s Tenth Circuit Court of Appeals (for Franklin County) asking the court to order the Industrial Commission to vacate the hearing officer’s findings. (A mandamus action is filed in an appellate court and asks that court to order a commission or another court to take some action.)

First, the contractor argued that it was improper for the hearing officer to find, after a review of the postaccident inspection evidence, that the reverse signal alarm was not working at the time of the accident. Further, the contractor asserted that the burden of proof had been improperly placed on it. It reached this conclusion because the hearing officer had called the contractor’s explanation for the backup alarm failure after the accident “pure speculation.”

The court reviewed the evidence and disagreed with the contractor. It was undisputed that the reverse signal did not function immediately after the accident. Further, there was no evidence that the alarm was working just before the accident. No person came forward to state that the alarm was or was not working properly. The driver of the truck was inside the cab with the windows up and the radio on and could not hear the alarm.

Although there was no compelling evidence as to when the alarm stopped working—before, during, or after the accident—the court ruled that as long as the hearing officer’s conclusion was based on “some evidence,” it was not an abuse of discretion.

After the hearing, the contractor raised, for the first time, an argument that it could not legally be held liable for a “first-time failure” of its equipment. On this basis, it requested a rehearing. Since the hearing officer did not grant the rehearing, the contractor raised this failure on appeal, claiming it too was an abuse of discretion.

The contractor cited Ohio Supreme Court authority holding that “first time failure of a safety device cannot sustain a finding of a violation of a specific safety requirement.” This argument would, if made at the appropriate time, provide a strong defense to the VSSR claim.

Unfortunately for the contractor, however, it failed to make this argument during the original hearing. The court determined that the hearing officer could not make a mistake of law in failing to address the contractor’s defense when the contractor failed to raise it in the first place. The court refused to make it the hearing officer’s duty to raise the contractor’s defenses at the hearing. This decision is consistent with the decisions of almost all appellate courts, which refuse to consider new arguments that were not presented originally to the trial court.