Ohio N. Univ. v. Charles Constr. Servs., Inc.
2017 Ohio 258
Ohio Ct. App.2017Background
- Ohio Northern University (ONU) sued contractor Charles Construction Services, Inc. (CCS) for defective construction and resulting property damage to a completed hotel project; CCS third-partied its subcontractors.
- CCS purchased a Commercial General Liability (CGL) policy from Cincinnati Insurance Company (CIC) that included a products-completed operations section and a subcontractor exception to the "your work" exclusion; premium records indicate extra charge for products/completed operations.
- CIC intervened and sought a declaratory judgment that it had no duty to defend or indemnify CCS because ONU’s defective-work claims do not allege "property damage" caused by an "occurrence."
- The trial court granted CIC summary judgment relying on Westfield Ins. Co. v. Custom Agri Sys., Inc., concluding defective workmanship (including subcontractors’) is not an "occurrence," and terminated CIC from the case.
- The appellate majority reversed, finding policy language (products-completed operations plus a subcontractor exception) creates an ambiguity that must be construed for the insured, so CIC may have a duty to defend/indemnify; the case was remanded.
- A separate dissent argued the parties had agreed to an entry and that the appeal should be barred by the agreed judgment language.
Issues
| Issue | Plaintiff's Argument (ONU/CCS) | Defendant's Argument (CIC) | Held |
|---|---|---|---|
| Whether CIC has a duty to defend/indemnify CCS for ONU’s post-completion property damage claims | Coverage exists because the policy’s products-completed operations coverage and subcontractor exception apply to subcontractor-caused damage after completion | Custom Agri controls: defective-work claims (whoever performed them) are not "property damage" caused by an "occurrence," so no duty exists | Reversed trial court: ambiguous policy language (products-completed operations + subcontractor exception) must be construed for insured; duty to defend/indemnify not foreclosed as a matter of law |
| Whether Westfield v. Custom Agri precludes coverage for subcontractor defective work | Custom Agri is distinguishable because it addressed the insured’s own defective work, not subcontractor-caused damage covered by specific policy exceptions | Custom Agri should be applied broadly—defective workmanship never constitutes an "occurrence" regardless of who performed it | Custom Agri does not automatically defeat coverage here because specific policy provisions/exceptions may alter the result; ambiguity favors insured |
| Whether the "your work" exclusions (j(5)/j(6)/L) bar coverage for post-completion damage | Exclusions j(5) (work in progress) and j(6) (work requiring repair) have exceptions; products-completed operations hazard and subcontractor exception restore coverage for subcontractor-caused post-completion damage | Exclusions and Custom Agri render the additional provisions immaterial because there is no "occurrence" to trigger coverage | The policy language (including exceptions) is reasonably susceptible to more than one meaning; courts must give effect to subcontractor exception rather than render it meaningless |
| Proper interpretation standard for ambiguous CGL terms | Ambiguities should be construed in favor of insureds to give effect to bargained-for coverage (including paid-for endorsements) | Insurer contends plain-language and Custom Agri control to bar coverage | Court applies standard contract/insurance interpretation: ambiguous provisions construed against insurer; summary judgment in insurer’s favor was erroneous |
Key Cases Cited
- Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476 (Ohio 2012) (held defective construction/workmanship claims are not "property damage" caused by an "occurrence" under a standard CGL policy)
- Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216 (Ohio 2003) (principles of insurance contract interpretation cited by the court)
- U.S. Fire Ins. Co. v. J.S.U.B., 979 So.2d 871 (Fla. 2007) (discussion of subcontractor exception and insurer’s option to exclude that risk by endorsement)
- Sheehan Constr. Co. v. Continental Cas. Co., 935 N.E.2d 160 (Ind. 2010) (interpreted similar CGL provisions to permit coverage for subcontractor-caused post-completion damage)
- National Surety Corp. v. Westlake, 880 N.W.2d 724 (Iowa 2016) (concluded subcontractor defective work may constitute an "occurrence" and upheld subcontractor-exception-based coverage)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (noted that industry endorsements can remove subcontractor exception; discussed interplay between exclusions and exceptions)