In deciding Westfield Insurance Company v. Custom Agri Systems, Inc., 2012 Ohio 4712, the Ohio Supreme Court recently held that defective construction or workmanship is not a covered “occurrence” under a commercial general liability (“CGL”) insurance policy, even if the defective work was performed by a subcontractor of the insured contractor. In that case, a contractor sought defense and indemnity from its insurer related to allegations of damages arising from a steel grain bin which had been defectively constructed by a subcontractor. The insurer argued that the claims against the contractor were not for “property damage” caused by an “occurrence,” or, alternatively, that the claims were removed from coverage by the policy’s contractual liability exclusion.
In rendering its opinion, the court stated that faulty workmanship was not fortuitous and therefore not an accident or occurrence under a CGL policy. Because it held that defective construction was not an occurrence, the court did not address question of whether such claims were excluded by the contractual liability exclusion. The dissent, however, noted a “strong recent trend in the case law” which interprets the term occurrence to include unanticipated or unintentional damage to non-defective property resulting from faulty work. The dissent went on to criticize the majority opinion as being too broad because it foreclosed the possibility of defective workmanship constituting an occurrence under any circumstance.
Courts throughout the country are split on whether defective workmanship is an occurrence under a CGL policy. Ohio is simply latest state to weigh in on the debate. The Westfield decision will not be well-received by contractors but is likely to be celebrated by insurance companies who may rely on it in refusing to defend claims.