Coverage for Subcontractor Liability

You know the feeling. An insured’s claim comes in with what appears to be great liability on the part of someone else. But before we allow ourselves to get too excited, we have to follow up on whether or not that someone else had applicable insurance coverage for the loss. This is especially true when we are dealing with a loss involving multiple contractors. Last year, the Ohio Supreme Court determined that a subcontractor’s faulty workmanship was not covered by the general contractor’s commercial general liability policy.

Subcontractor’s faulty workmanship not covered by the general contractor’s commercial general liability policy

The case, Ohio Northern University v. Charles Construction Servs., 155 Ohio St. 3d 197, 2018-Ohio-4057, involved defects valued in the millions of dollars in the construction of a luxury hotel and conference center at ONU. The general contractor for the project, Charles Construction Services, Inc., sought coverage pursuant to its commercial general liability policy or CGL. Several years prior, the Ohio Supreme Court held “property damage caused by the contractor’s own faulty workmanship does not involve an ‘occurrence’ such that the CGL policy would cover the loss.”  Westfield Ins. Co. v. Custom Agri Systems, Inc., 133 Ohio St. 3d 476, 2012-Ohio-4712, syllabus. This was because an “occurrence” was defined in the CGL policy as an “accident” and an accident involves “fortuity.”  Id. at ¶¶ 12, 14.

The insurance company is not required to defend the general contractor against or indemnify the general contractor for claims for damage caused by its subcontractor’s defective work because the work is not an occurrence

In the ONU case, the Ohio Supreme Court expanded the Custom Agri rule by finding that “property damage caused by a subcontractor’s faulty work is not fortuitous and does not meet the definition of an ‘occurrence’ under a CGL policy.” Charles Construction Servs., 2018-Ohio-4057 at ¶ 35. Therefore, the insurance company is not required to defend the general contractor against or indemnify the general contractor for claims for damage caused by its subcontractor’s defective work because the work is not an “occurrence.”

Construction defect subrogation

It is essential to analyze the applicable CGL policy to determine whether the definition of “occurrence” is the same as the one at issue in these cases. In some cases, the original definition of “occurrence” may be more expansive, or may be subject to amendments that define defective workmanship as an “occurrence.”  Contact one of our subrogation attorneys to learn more.