Lightning Rod Mut. Ins. Co. v. Southworth (Slip Opinion)
2017 Ohio 7438
| Ohio | 2017Background
- In 2007 CMH (seller) sold and Bob’s (installer; Robert Southworth) installed a manufactured home for the Beatties; defects (cracked drywall/ceiling at marriage line) appeared soon after installation and persisted despite repairs.
- Beatties sued Skyline (manufacturer), CMH, and others in 2012. CMH filed a third-party complaint against Bob’s for breach and indemnity.
- Bob’s sought defense/indemnity from its insurer Lightning Rod under a commercial general liability (CGL) policy covering 2008–2009 and renewed annually through 2012; Lightning Rod reserved rights and sued for a declaratory judgment denying coverage.
- Trial court granted Lightning Rod summary judgment, finding no coverage because the property damage occurred before the policy period and Southworth knew of defects before the policy. The Fourth District affirmed, holding damage that first occurs before the policy period and continues or recurs during it does not trigger coverage.
- The Supreme Court dismissed the appeal as improvidently accepted. Justice O'Donnell (joined by Justice French) dissented, arguing the policy should cover damage that exists (continues or resumes) during the policy period unless known to the insured before the policy.
Issues
| Issue | Plaintiff's Argument (CMH) | Defendant's Argument (Lightning Rod) | Held |
|---|---|---|---|
| Meaning of "occurs" in the policy requirement that property damage "occurs during the policy period" | "Occurs" can mean that physical injury exists during the policy period; thus continuing/resumed damage during the period can trigger coverage if not known before policy inception | "Occurs" means the damage must first happen during the policy period; continuation of preexisting damage does not trigger coverage | Supreme Court dismissed appeal as improvidently accepted; dissent would hold "occurs" reasonably read as "exists," covering continuation/resumption absent insured's prior knowledge |
| Effect of the policy's prior-knowledge exclusion (Section 1(b)(3)) | The exclusion shows the policy contemplates coverage for damage that exists during the policy period and limits it only when insured or authorized employee knew of the damage before the policy | The exclusion is unnecessary if "occurs" already requires first manifestation during the policy period; policy unambiguously bars coverage for continuing preexisting damage | Dissent reasons that construing "occurs" as "exists" gives effect to the prior-knowledge exclusion; majority did not decide on the merits due to dismissal |
| Whether Bob’s faulty workmanship qualifies as an "occurrence" under the CGL policy | CMH (on behalf of Bob’s interests) disputed Lightning Rod’s contention that defective workmanship is not an occurrence | Lightning Rod argued faulty workmanship is a product of expected results and thus not an occurrence | Appellate court resolved in favor of Lightning Rod on the coverage timing issue and did not address the workmanship-as-occurrence argument; Supreme Court dismissed appeal (no merits ruling) |
| Procedural posture—should the Supreme Court decide the coverage question on the merits? | CMH urged resolution on the merits because the interpretive question is important and recurring | Lightning Rod urged dismissal as improvidently accepted or, alternatively, affirmance because policy excludes continuing preexisting damage and other coverage defenses apply | Supreme Court dismissed the appeal as improvidently accepted; Justice O'Donnell would have reversed the court of appeals and remanded for consideration of other issues |
Key Cases Cited
- Transtar Elec., Inc. v. A.E.M. Elec. Servs. Corp., 140 Ohio St.3d 193 (2014) (summary-judgment standard and de novo review)
- Laboy v. Grange Indemn. Ins. Co., 144 Ohio St.3d 234 (2015) (insurance-policy interpretation is a question of law; ascertain parties' intent)
- Sharonville v. Am. Emps. Ins. Co., 109 Ohio St.3d 186 (2006) (policy interpretation principles)
- Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241 (1978) (plain and ordinary meaning rule for contract terms)
- In re All Kelley & Ferraro Asbestos Cases, 104 Ohio St.3d 605 (2004) (clear, unambiguous terms control)
- Dominish v. Nationwide Ins. Co., 129 Ohio St.3d 466 (2011) (ambiguities construed against insurer)
- Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d 657 (1992) (give effect to all contract provisions where reasonable)
- Wadsworth Coal Co. v. Silver Creek Mining & Ry. Co., 40 Ohio St. 559 (1884) (instruction that effect be given to all words of an instrument)