The Ohio Supreme Court recently determined that underlying obligations of defective workmanship are not claims for "property damage" caused by an "occurrence." Westfield Ins. Co. v. Custom Agri. Systems, Inc., 2012 Ohio LEXIS 2485 (Ohio Oct. 16, 2012).
The case evolved from a certified question from the United States Court of Appeals for the Sixth Circuit. A property owner sustained damages from defects in a steel grain bin constructed by the insured, Custom Agri Systems, Inc. When the property owner sued, Custom tendered the suit to Westfield, its insurer. Westfield argued none of the claims against Custom for defective construction or consequential damages resulting from the defective construction were "property damage" caused by an "occurrence."
The Ohio Supreme Court noted that under Ohio law, a CGL policy did not insure the insured's work itself; rather it insured consequential damages that stemmed from that work. All the claims that Westfield was being asked to cover related to Custom's work itself, i.e. the alleged defective construction of and workmanship on the steel grain bin.
The court decided that claims for faulty workmanship were not fortuitous in the context of a CGL policy. Therefore, CGL policies did not provide coverage to Customs for its alleged defective construction of and workmanship on the steel grain bin.
I would agree with the rationale of the dissent. If the defective construction was accidental, it would constitute an "occurrence" under a CGL policy. After all, what contractor or subcontractor intentionally engages in faulty workmanship? The dissent noted that a strong recent trend in the case law interprets the term "occurrence" to encompass unanticipated damage to nondefective property resulting from poor workmanship. Coverage could still be excluded, however, on the basis of a business risk exclusion.
