While general contractors oversee entire construction projects, specialized subcontractors, such as masons, roofers, electricians and other trades, often perform those portions of the projects falling within their scope of work. Despite its use of skilled subcontractors, the general contractor remains responsible for the project as a whole. This responsibility has important implications regarding the general contractors’ insurance coverage in states like Ohio, where the Ohio Supreme Court has ruled that, even where a general contractor utilizes subcontractors, the entire construction project is the general contractor’s work. Ohio N. Univ. v. Charles Construction Servs., Inc., 2018-Ohio-4057. Accordingly, Ohio law may prevent general contractors from obtaining coverage under their own standard CGL policies for damage to any portion of a project, even if a subcontractor performed the defective work. This article provides a brief overview of the Ohio Northern decision and its predecessor, Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476, 2012-Ohio-4712 and identifies potentially-available endorsements that cover gaps in coverage related to the Ohio Northern and Custom Agri decisions.
A. Claims for Faulty Construction Under Ohio Law.1
In 2012, the Ohio Supreme Court held that an insured’s claims for defective construction or faulty workmanship arising from its own work are not covered under a commercial general liability policy: they are “not claims for ‘property damage’ caused by an ‘occurrence’…” Westfield Ins. Co. v. Custom Agri Sys. Ins.,133 Ohio St.2d 476, 2012-Ohio-4712 at Syl. The Custom Agri Court, however, cited with approval previous Ohio cases that found coverage for consequential damages arising from the defective work, subject to the conditions and exclusions in the policy. For example, under Custom Agri, if a policyholder defectively installed a roof on a building and the defective roof allowed water to leak in the building and damage the top floor, the cost to repair the roof (the defective work itself) would not be covered, but the water damage to the top floor (the consequential damages) would be covered.
Custom Agri left open the question of whether defective construction performed by a subcontractor (as opposed to the general contractor itself) could be a covered “occurrence” under the general contractor’s liability policy. In Ohio Northern, the Ohio Supreme Court answered this question. At issue in Ohio Northern was property damage arising from a subcontractors’ faulty work. The general contractor sought coverage under its commercial general liability policy, its insurer denied the claim, and litigation ensued. The question ultimately decided by the Ohio Supreme Court was whether the general contractor’s liability policy covered the costs to repair or replace its subcontractor’s defective work. Or, in other words, whether Custom Agri—which held that repair of a policyholder’s own work was not covered—applied to bar coverage of a general contractor’s claim for a subcontractor’s faulty work. The Court found that Custom Agri applied and that the general contractor could not recover under its policy for damages arising from the subcontractor’s faulty work.
B. General Contractors Should Consider Additional Coverage in Light of Ohio Northern
Coverage is available to general contractors for the gaps in coverage that the Ohio Supreme Court’s decisions in Ohio Northern and Custom Agri identified. Most insurance companies have the ability to offer coverage for property damage caused by a subcontractor through an endorsement (i.e., an extension of coverage) to the general contractor’s policy; however, the coverage that insurers offer is not standard across the industry. Some examples of insurers’ individual endorsements are:
Cincinnati Insurance - GA 4315 03 12 Injury or Damage To Or Resulting From Your Work And Injury Or Damage Resulting From Your Product. This coverage form states that damage from completed work performed by higher-tiered subcontractor is property damage caused by an occurrence.
Westfield Insurance - CG7121 Damage to Your Work. This form provides coverage for property damage that is the result of work performed by a subcontractor as long as the subcontractor is not a Named Insured and the property damage is unexpected or unintended.
CNA - CNA 74906 1 15 Damage to Subcontractors’ Work Endorsement. This policy form provides coverages for the Named Insured due to unintended or unexpected property damage that is the result of work performed on the Named Insured’s behalf by a subcontractor, consists of your work performed by the subcontractor, or for other property damaged by the subcontractor’s work.
If you utilize subcontractors, it is imperative that you review the language of your current insurance policy or consult with your current insurance broker about the Ohio Northern decision to confirm that you have the proper coverage