News & Events

Litigation Roundup – Faulty Work by a Subcontractor Will Not be Covered by a Commercial General Liability Policy

By:  Josh Morrow

The long-awaited Ohio Supreme Court decision in Ohio Northern University v. Charles Construction Services, Inc., finally hit the books in the last quarter of 2018, sending a clear message to Ohio contractors that their commercial general liability (“CGL”) insurance policies likely will not cover damages caused by their subcontractors’ defective work.

Contractors were already made aware of their lack of CGL coverage for their own defective work, thanks to the Ohio Supreme Court’s ruling in the often discussed Westfield Ins. Co. v. Custom Agri. Sys., Inc. decision from 2012. However, the question arose in ONU as to whether the defective work of a contractor’s subcontractors could be considered an “occurrence” under the contractor’s CGL policy, thus deeming it a covered event. The Court held that the subcontractor’s defective work is not “fortuitous” and therefore not “accidental.” As such, the defective work was not a covered “occurrence” under the general contractor’s CGL policy.

The decision deviates from the position in the majority of states, which have found an event to be an “occurrence” pursuant to the general contractor’s CGL policy language. Time will tell as to how the Ohio legislature responds to the ONU decision, if at all. Until then, contractors should address the issue with their carrier and look to purchase a rider or other form of an endorsement to their current CGL policy in order to fill the gap in coverage.

Perhaps more importantly, contractors should also conduct thorough due diligence when selecting their subcontractors, ensuring only those subs who are qualified and reputable provide work. Significant and consistent on-site inspections should then follow once a subcontractor’s work commences.

While uncertainty remains as to the extent of the ripple effect caused by the ONU decision, one thing seems to be a given. The decision will impact Ohio contractors’ bottom line, as they will now be forced to address their subcontractors’ defective work purely out of their own pocket without the assistance of their carrier. Alternatively, contractor insurance premiums will likely rise in connection with any rider that may look to provide coverage for such work.  Contractors should consult with their insurance agents and lawyers regarding the impact of the decision, both short and long term.