Westfield Insurance v. Custom Agri Systems, Inc.

[Cite as Westfield Ins. Co. v. Custom Agri Sys., Inc., 133 Ohio St.3d 476, 2012-Ohio-4712.]

WESTFIELD INSURANCE COMPANY v. CUSTOM AGRI SYSTEMS, INC.
[Cite as Westfield Ins. Co. v. Custom Agri Sys., Inc.,
133 Ohio St.3d 476, 2012-Ohio-4712.]
Insurance—Claims for defective workmanship not covered by commercial general
liability policy.
(No. 2011-1486—Submitted April 4, 2012—Decided October 16, 2012.)
CERTIFIED by the United States Court of Appeals
for the Sixth Circuit, No. 11-3213.
__________________
SYLLABUS OF THE COURT
Claims of defective construction or workmanship brought by a property owner are
not claims for “property damage” caused by an “occurrence” under a
commercial general liability policy.
__________________
O’CONNOR, C.J.
BACKGROUND
{¶ 1} This cause is here on the certification of state-law questions from
the United States Court of Appeals for the Sixth Circuit. Thus the facts of this
case are taken from the order of certification.
{¶ 2} Younglove Construction, L.L.C., entered into a contract with PSD
Development, L.L.C., for the construction of a feed-manufacturing plant in
Sandusky, Ohio. When PSD withheld payment, Younglove brought this diversity
suit against PSD and three other defendants, seeking damages for breach of
contract and related causes of action. In its answer, PSD alleged that it had
sustained damages as a result of defects in a steel grain bin. The bin had been
constructed by respondent, Custom Agri Systems, Inc., as a subcontractor, and
 SUPREME COURT OF OHIO

Younglove filed a third-party complaint against Custom for contribution and
indemnity. Custom filed similar third-party complaints against the subcontractors
it had used to construct the bin and turned to its insurer, petitioner Westfield
Insurance Company, to defend and indemnify it in the litigation. Westfield
intervened in order to pursue a judgment declaring that it had no such duty under
the terms of its commercial general liability (“CGL”) policy with Custom.
{¶ 3} Custom was being sued under two general theories: defective
construction and consequential damages resulting from the defective construction.
Westfield argued that none of the claims against Custom sought compensation for
“property damage” caused by an “occurrence” and therefore that none of the
claims were covered under the CGL policy. In the alternative, Westfield argued
that even if the claims were for property damage caused by an occurrence, they
were removed from coverage by an exclusion in the policy.
{¶ 4} Westfield and Custom filed cross-motions for summary judgment.
The parties agreed that the case was governed by Ohio law, and the United States
District Court for the Northern District of Ohio acknowledged that it was an open
question under Ohio law whether defective-construction claims fall under the
auspices of a CGL policy. Rather than decide the issue, the district court assumed
that Custom’s policy covered defective construction and went on to find that the
exclusion removed such claims from coverage. After reconsideration of an earlier
order, the district court granted summary judgment for Westfield. Younglove
Constr., L.L.C. v. PSD Dev., L.L.C., 767 F.Supp.2d 820 (N.D.Ohio 2011).
{¶ 5} Custom appealed the summary judgment in favor of Westfield.
Westfield moved to certify two questions of state law to this court. Custom did
not oppose the motion.
{¶ 6} In a divided decision, the Sixth Circuit determined that the
question of whether defective construction or workmanship constitutes an
“occurrence” within the meaning of a CGL policy in Ohio might be determinative

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of the action in federal court. Furthermore, the Sixth Circuit found no controlling
precedent on the issue in our decisions. For those reasons, the Sixth Circuit
certified the following two questions of state law to this court pursuant to
S.Ct.Prac.R. 18.1:

(1) Are claims of defective construction/workmanship
brought by a property owner claims for “property damage” caused
by an “occurrence” under a commercial general liability policy?
(2) If such claims are considered “property damage” caused
by an “occurrence,” does the contractual liability exclusion in the
commercial general liability policy preclude coverage for claims
for defective construction/workmanship?

{¶ 7} We agreed to answer both questions. Westfield Ins. Co. v. Custom
Agri Sys., Inc., 130 Ohio St.3d 1415, 2011-Ohio-5605, 956 N.E.2d 307.
ANALYSIS
First Certified State-Law Question
{¶ 8} The underlying claim is one of defective construction of or
workmanship on the steel grain bin by Custom. The present action is one of
contract interpretation, as the issue is whether the claims of defective construction
or workmanship against Custom fall within the insurance policy issued by
Westfield.

When confronted with an issue of contractual
interpretation, the role of a court is to give effect to the intent of
the parties to the agreement. Hamilton Ins. Serv., Inc. v.
Nationwide Ins. Cos. (1999), 86 Ohio St.3d 270, 273, 714 N.E.2d
898, citing Employers’ Liab. Assur. Corp. v. Roehm (1919), 99

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Ohio St. 343, 124 N.E. 223, syllabus. See, also, Section 28,
Article II, Ohio Constitution. We examine the insurance contract
as a whole and presume that the intent of the parties is reflected in
the language used in the policy. Kelly v. Med. Life Ins. Co. (1987),
31 Ohio St.3d 130, 31 OBR 289, 509 N.E.2d 411, paragraph one of
the syllabus. We look to the plain and ordinary meaning of the
language used in the policy unless another meaning is clearly
apparent from the contents of the policy. Alexander v. Buckeye
Pipe Line Co. (1978), 53 Ohio St.2d 241, 7 O.O.3d 403, 374
N.E.2d 146, paragraph two of the syllabus. When the language of
a written contract is clear, a court may look no further than the
writing itself to find the intent of the parties. Id. As a matter of
law, a contract is unambiguous if it can be given a definite legal
meaning. Gulf Ins. Co. v. Burns Motors, Inc. (Tex.2000), 22
S.W.3d 417, 423.

Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d
1256, ¶ 11.
{¶ 9} The insurance policy here provides:

COMMERCIAL GENERAL LIABILITY COVERAGE
FORM
***
SECTION I—COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE
LIABILITY
1. Insuring Agreement

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a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily injury” or
“property damage” to which this insurance applies. We will have
the right and duty to defend the insured against any “suit” seeking
those damages. However, we will have no duty to defend the
insured against any “suit” seeking damages for “bodily injury” or
“property damage” to which this insurance does not apply. We
may, at our discretion, investigate any “occurrence” and settle any
claim or “suit” that may result. But:
***
(2) Our right and duty to defend end when we have
used up the applicable limit of insurance in the payment of
judgments or settlements under Coverages A or B or medical
expenses under Coverage C.
***
b. This insurance applies to “bodily injury” and
“property damage” only if:
(1) The “bodily injury” or “property damage” is caused
by an “occurrence” that takes place in the “coverage territory;”
***
SECTION V—DEFINITIONS
***
3. “Bodily injury” means bodily injury, sickness or
disease sustained by a person, including death resulting from any
of these at any time.
***

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13. “Occurrence” means an accident, including
continuous or repeated exposure to substantially the same general
harmful conditions.
***
17. “Property damage” means:
a. Physical injury to tangible property, including all
resulting loss of use of that property. All such loss of use shall be
deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not
physically injured. All such loss of use shall be deemed to occur at
the time of the “occurrence” that caused it.

{¶ 10} CGL policies are

not intended to protect business owners against every risk of
operating a business. In particular, [these] policies * * * are not
intended to insure “business risks” [see generally Franco,
Insurance Coverage for Faulty Workmanship Claims under
Commercial General Liability Policies, 30 Tort & Ins.L.J. 785
(1994)]—risks that are the “ ‘normal, frequent, or predictable
consequences of doing business, and which business management
can and should control or manage.’ ” [Columbia Mut. Ins. Co. v.
Schauf, 967 S.W.2d 74, 77 (Mo.1998), quoting James T. Hendrick
and James P. Wiezel, The New Commercial General Liability
Forms—An Introduction and Critique, Fedn. of Ins. & Corporate
Counsel Quarterly 319, 322 (Summer 1986).] Courts generally
conclude that the policies are intended to insure the risks of an
insured causing damage to other persons and their property, but

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that the policies are not intended to insure the risks of an insured
causing damage to the insured’s own work. [Id.] In other words,
the policies do not insure an insured’s work itself; rather, the
policies generally insure consequential risks that stem from the
insured’s work.

Heile v. Herrmann, 136 Ohio App.3d 351, 353, 736 N.E.2d 566 (1st Dist.1999).
See also ACUITY v. Burd & Smith Constr., Inc., 2006 ND 187, 721 N.W.2d 33,
¶ 12 (holding that a claim of faulty workmanship that results in damage to
property other than the work product is an accident and that “a CGL policy is not
intended to insure business risks that are the normal, frequent, or predictable
consequences of doing business and which businesses can control and manage.
* * * A CGL policy does not insure the insured’s work itself; rather, it insures
consequential damages that stem from that work. * * * As a result, a CGL policy
may provide coverage for claims arising out of tort, breaches of contract, and
statutory liabilities as long as the requisite accidental occurrence and property
damage are present”); Century Indemn. Co. v. Golden Hills Builders, Inc., 348
S.C. 559, 565-566, 561 S.E.2d 355 (2002) (holding that under a CGL policy, an
insurer had no duty to defend its insured in an action resulting from faulty
workmanship and that a CGL policy “ ‘is not intended to insure business risks,
i.e., risks that are the normal, frequent, or predictable consequences of doing
business, and which business management can and should control or manage.’
[Rowland H. Long, The Law of Liability Insurance] § 10.01[1]. Specifically, ‘the
policies do not insure [an insured’s] work itself, but rather, they generally insure
consequential risks that stem from that work.’ Id.”).
{¶ 11} Here, all of the claims against which Westfield is being asked to
defend and indemnify Custom relate to Custom’s work itself, i.e., the alleged
defective construction of and workmanship on the steel grain bin. Although it is a

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widely accepted principle that such claims are not covered by CGL policies, our
inquiry cannot and must not end there. The issue we must decide is whether the
CGL policy in the present case provides coverage to Custom for its alleged
defective construction of and workmanship on the steel grain bin. Specifically,
we must decide whether Custom’s alleged defective construction of and
workmanship on the steel grain bin constitute property damage caused by an
“occurrence.”
{¶ 12} In the CGL policy here, the word “occurrence” is defined as “an
accident, including continuous or repeated exposure to substantially the same
general harmful conditions.” The word “accident,” however, is not defined in the
CGL policy. Therefore, “accident” must be given its “natural and commonly
accepted meaning.” Gomolka v. State Auto. Mut. Ins. Co., 70 Ohio St.2d 166,
167-168, 436 N.E.2d 1347 (1982).
{¶ 13} We have defined “accidental” as “unexpected, as well as
unintended.” Hybud Equip. Corp. v. Sphere Drake Ins. Co., 64 Ohio St.3d 657,
666, 597 N.E.2d 1096 (1992). In defining the ordinary meaning of “accident” in
the context of a CGL policy that, too, did not include a definition of the word, our
sister court in Kentucky held, “Inherent in the plain meaning of ‘accident’ is the
doctrine of fortuity. Indeed, ‘[t]he fortuity principle is central to the notion of
what constitutes insurance * * *.’ ” Cincinnati Ins. Co. v. Motorists Mut. Ins. Co.,
306 S.W.3d 69, 74 (Ky.2010), quoting Corpus Juris Secundum, Insurance,
Section 1235 (2009). Similarly, the Eleventh District has held:

“ ‘Insurance coverage is bottomed on the concept of
fortuity. Applying this rule in the construction context, truly
accidental property damage generally is covered because such
claims and risks fit within the statistical abstract. Conversely,
faulty workmanship claims generally are not covered, except for

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their consequential damages, because they are not fortuitous. In
short, contractors’ “business risks” are not covered by insurance,
but derivative damages are. The key issues are whether the
contractor controlled the process leading to the damages and
whether the damages were anticipated.
“ ‘Coverage analysis largely turns on the damages sought.
If the damages are for the insured’s own work, there is generally
no coverage. If the damages are consequential and derive from the
work the insured performed, coverage generally will lie. The
underwriting intent is to exclude coverage for the contractor’s
business risks, but provide coverage for unanticipated
consequential damages.’ ” (Emphasis added.) [Indiana Ins. Co. v.
Alloyd Insulation Co., 2d Dist. No. 18979, 2002-Ohio-3916] ¶ 27–
28, quoting Franco, Insurance Coverage for Faulty Workmanship
Claims Under Commercial General Liability Policies (1994), 30
Tort and Ins. L.J. 785, 785-787.

JTO, Inc. v. State Auto Mut. Ins. Co., 194 Ohio App.3d 319, 2011-Ohio-1452, 956
N.E.2d 328, ¶ 32–33 (11th Dist.).
{¶ 14} We agree that claims for faulty workmanship, such as the one in
the present case, are not fortuitous in the context of a CGL policy like the one
here. In keeping with the spirit of fortuity that is fundamental to insurance
coverage, we hold that the CGL policy does not provide coverage to Custom for
its alleged defective construction of and workmanship on the steel grain bin. Our
holding is consistent with the majority of Ohio courts that have denied coverage
for this type of claim. The majority view is that claims of defective construction
or workmanship are not claims for “property damage” caused by an “occurrence”
under a CGL policy. E.g., Bogner Constr. Co. v. Field & Assocs., 5th Dist. No.

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08-CA-11, 2009-Ohio-116, at ¶ 51 and 44 (holding that there was no coverage
because “there was no ‘occurrence’ within the meaning of the policy” because
“defective workmanship does not constitute an accident or an ‘occurrence’ under
a Commercial General Liability policy”); Paramount Parks, Inc. v. Admiral Ins.
Co., 12th Dist. No. CA2007-05-0666, 2008-Ohio-1351, at ¶ 25 (holding that “a
CGL policy such as the one at issue here does not insure against claims for
defective or negligent workmanship or construction because defective
workmanship does not constitute an ‘accident,’ and therefore claims for defective
or negligent workmanship do not constitute an occurrence under the policy”);
Westfield Ins. Co. v. Coastal Group, Inc., 9th Dist. No. 05CA008664, 2006-Ohio-
153, at ¶ 9-10 (holding that a contractor’s delay in remedying deficiencies in its
work is a claim for economic losses and “not an ‘accident’ and therefore, not an
‘occurrence’ ”); Heile v. Herrmann, 136 Ohio App.3d 351, 353-354, 736 N.E.2d
566 (1st Dist.1999) (holding that “courts in Ohio, as well as the majority of courts
in jurisdictions throughout the country, have concluded that defective
workmanship does not constitute an ‘occurrence’ in [CGL] policies” [footnotes
omitted]).
{¶ 15} In Bogner, the insurance policy at issue defined “occurrence” as
“ ‘an accident, including continuous or repeated exposure to conditions, which
results in bodily injury or property damage neither expected nor intended from the
standpoint of the Insured.’ ” Bogner, 2009-Ohio-116, at ¶ 41. The Fifth
Appellate District held:

“[T]here is no coverage under a general comprehensive liability
policy since defective workmanship does not constitute an
‘accident’ and since, without an ‘accident,’ there can be no
occurrence as such term is defined in the insurance policy. * * *
“* * *

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“Accordingly, since there was, therefore, no property
damage caused by an ‘occurrence,’ which the general commercial
liability insurance policy in this matter defines as an ‘accident,’
[the insured] was not entitled to coverage under such policy.”

Id. at ¶ 46–48, quoting Environmental Exploration Co. v. Bituminous Fire &
Marine Ins., Co., Stark App. No. 1999CA00315, 2000 WL 1608908 at *6 (Oct.
16, 2000).
{¶ 16} Similarly, in Essex Ins. Co. v. Holder, 370 Ark. 465, 261 S.W.3d
456 (2008), the Arkansas Supreme Court reached the same result. The issue was
“whether defective construction or workmanship is an ‘accident’ and, therefore,
an ‘occurrence’ within the meaning of commercial general liability insurance
policies.” Id. at 457. In Essex, a couple had contracted with a builder to build a
home. Before the home was completed, the couple sued the builder, seeking
damages for breach of contract, breach of an express warranty, breach of implied
warranties, and negligence. They alleged that they had suffered damages from the
builder’s delays, employment of incompetent subcontractors, and defective or
incomplete construction. The builder then demanded that Essex Insurance
Company defend him in the action under his CGL policies.
{¶ 17} Essex asserted that there was no coverage under any of the CGL
policies for the alleged damages. The federal district court certified this question
of Arkansas law to the Arkansas Supreme Court to decide.
{¶ 18} The Arkansas court held that “the contractor’s obligation to repair
or replace its subcontractor’s defective workmanship could not be deemed
unexpected on the part of the contractor, and therefore, failed to constitute an
‘event’ for which coverage existed under the policy.” Id. at 459, citing Nabholz
Constr. Corp. v. St. Paul Fire & Marine Ins. Co., 354 F.Supp.2d 917, 921-922
(E.D.Ark.2005). Therefore, the Arkansas Supreme Court held that “defective

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workmanship standing alone—resulting in damages only to the work product
itself—is not an occurrence under a CGL policy.” Id. And as the court pointed
out, to protect itself from faulty performance by a subcontractor, a contractor can
require the subcontractor to provide a performance bond.
{¶ 19} Based on our review of the purpose of a CGL policy and of the
majority view of our appellate courts that have addressed this issue and the view
of our sister court in Arkansas, we hold that claims of defective construction or
workmanship brought by a property owner are not claims for “property damage”
caused by an “occurrence” under a commercial general liability policy such as the
one in the present case.
Second Certified State-Law Question
{¶ 20} Because we answered the first question in the negative, the second
certified state-law question is moot.
CONCLUSION
{¶ 21} We answer the first certified state-law question in the negative and
hold that claims of defective construction or workmanship brought by a property
owner are not claims for “property damage” caused by an “occurrence” under a
commercial general liability policy. We do not reach the second certified state-
law question, as it is unnecessary to do so.
So answered.
LUNDBERG STRATTON, LANZINGER, CUPP, and MCGEE BROWN, JJ.,
concur.
O’DONNELL, J., concurs in judgment only.
PFEIFER, J., dissents.
__________________
PFEIFER, J., dissenting.
{¶ 22} I dissent, first, because I believe this court should not be answering
this question at this time. The question the majority leaves unanswered is the

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only question truly at issue in this case. Second, I dissent from the majority’s
response to the first certified question of law.
The Wrong Question
{¶ 23} The district court determined that it did not have to answer the
question of whether claims of defective construction/workmanship are claims
created by an “occurrence” under a commercial general liability (“CGL”) policy.
Instead, it answered the question it deemed dispositive—whether the policy’s
contractual liability exclusion precluded coverage for claims for defective
construction/workmanship in this case. Even at the trial level, Westfield
Insurance Company sought certification to this court for a determination of the
two issues it raises here, but the district court denied the motion. I agree with the
dissenting judge of the court of appeals—Westfield’s revival of the motion to
certify at the appellate level was an end run to evade abuse-of-discretion review
of the district court’s denial of the motion for certification. As Judge McKeague
wrote below, “the proper course would have been for Westfield to appeal the
district court’s denial of the motion to certify.”
{¶ 24} Custom Agri Systems appealed the district court’s determinative
ruling on the policy exclusion, but Westfield again sought certification to this
court—this time from the court of appeals—on the broader issue of whether
defective workmanship constitutes an “occurrence” under a CGL policy. The
district court had concluded that it was unnecessary to even meet that question,
and as Judge McKeague noted, “there is absolutely no reason to certify the first
question at this stage of the litigation.” If the appellate court first overruled the
district court on the contractual exclusion issue, it might then become appropriate
for the panel, or the district court on remand, to certify the question to this court.
Until then, Judge McKeague wrote, the circuit court “should not be in the
business of certifying questions that need not be resolved.”

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{¶ 25} The first certified question is a big question, and an open question,
which Westfield really wants answered. But its desire to resolve an issue that
must arise with its policyholders fairly often does not create in this court an
obligation to answer it in this case. This is not “Dear Abby.”
The Wrong Answer
{¶ 26} I also dissent from the majority’s response to the first certified
question, “Are claims of defective construction/workmanship brought by a
property owner claims for ‘property damage’ created by an ‘occurrence’ under a
commercial general liability policy?” The majority answers in the negative. I
would answer that if the defective construction is accidental, it constitutes an
“occurrence” under a CGL policy. “[A] strong recent trend in the case law
interprets the term ‘occurrence’ to encompass unanticipated damage to
nondefective property resulting from poor workmanship.” Greystone Constr., Inc.
v. Natl. Fire & Marine Ins. Co., 661 F.3d 1272, 1282 (10th Cir.2011). That is not
to say that an exclusion in the policy might not relieve the insurer of the duty to
provide coverage.
{¶ 27} The majority holding is too broad for the facts of this case.
Determining that defective workmanship cannot result in a covered occurrence
under a CGL policy forecloses too many other potential cases. The question
posed by the federal court concerns the initial grant of coverage; it does not relate
to any possible exclusions. In Zanco, Inc. v. Michigan Mut. Ins. Co., 11 Ohio
St.3d 114, 464 N.E.2d 513 (1984), this court faced a similar CGL policy and a
similar set of facts. In Zanco, condominium owners alleged that the contractor,
Zanco, breached its duty to construct the condominiums in a workmanlike
manner, thereby causing defects in the structure. Zanco did not deny the defects,
but rather claimed that the fault lay with its suppliers, who allegedly furnished
Zanco with defective materials. Zanco sought coverage under its CGL insurance
contract. The court looked to the entire contract to determine the issue. The court

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did not expressly rule on the issue of whether the damage to the condominiums
was “property damage” caused by an “occurrence,” but did indicate support for
the idea that at that threshold level, there was coverage but that the policy
exclusions were ultimately determinative:

Zanco maintains, and the court of appeals agreed, that the
counterclaim alleged “property damage” caused by an
“occurrence” as those terms are defined in the policies. Although a
perfectly credible argument can be made that the allegations in the
Pinecrest counterclaim were within these initial provisions for
coverage, the insurance contracts must be examined in their
entirety to determine if there are any applicable exceptions to their
coverage. A careful review of the exclusions contained in the
policies reveals that Michigan Mutual owed no duty to defend
under these facts.

(Footnote omitted.) Id. at 115-116.
{¶ 28} Again, the question we are answering does not consider
exclusions—it deals with the initial grant of coverage. Under the policy at issue,
the insurance covers “ ‘property damage’ * * * caused by an ‘occurrence’ that
takes place in the ‘coverage territory.’ ” The policy defines an “occurrence” as
“an accident, including continuous or repeated exposure to substantially the same
general harmful conditions.” The key question is whether defective workmanship
can be considered accidental. Given this court’s definition of “accidental,” I
would hold that the initial grant of coverage would apply in certain instances of
defective workmanship, those in which the damage was not intentional.
{¶ 29} This court’s definition of “accidental” is broad, covering
unexpected, unintentional happenings:

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In Hybud Equip. Corp. v. Sphere Drake Ins. Co. (1992), 64 Ohio
St.3d 657, 666, 597 N.E.2d 1096, we stated that “[i]n its common,
ordinary use, the word ‘accidental’ means unexpected, as well as
unintended.” (Emphasis added.) We similarly recognized in
Gearing v. Nationwide Ins. Co. (1996), 76 Ohio St.3d 34, 38, 665
N.E.2d 1115, that “inherent in a policy’s definition of ‘occurrence’
is the concept of an incident of an accidental, as opposed to an
intentional, nature.” (Emphasis altered.) Furthermore, in Rothman
v. Metro. Cas. Ins. Co. (1938), 134 Ohio St. 241, 247, 12 O.O. 50,
16 N.E.2d 417, this court acknowledged that “ ‘accident,’ as the
term is ordinarily used, is a more comprehensive term than
‘negligence,’ and in its common signification means an unexpected
happening without intention or design.” Id. at 247, 12 O.O. 50, 16
N.E.2d 417, citing Commonwealth Cas. Co. v. Headers (1928),
118 Ohio St. 429, 161 N.E. 278. Thus, we held in Rothman that
absent contrary language in a policy, “if the injury was not
intentionally caused, then it was accidentally suffered.” Id. at 246,
12 O.O. 50, 16 N.E.2d 417.

Safeco Ins. Co. of Am. v. White, 122 Ohio St.3d 562, 2009-Ohio-3718, 913
N.E.2d 426, ¶ 21.
{¶ 30} Our first-level analysis should thus focus upon whether the
defective workmanship was intentionally caused. In Sheehan Constr. Co., Inc. v.
Continental Cas. Co., 935 N.E.2d 160, 170 (Ind.2010), modified on rehearing,
938 N.E.2d 685 (Ind.2010), the Supreme Court of Indiana established that intent
is the key to determining whether a construction defect is accidental:

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Implicit in the meaning of “accident” is the lack of intentionality.
* * * The question presented is whether faulty workmanship is an
accident within the meaning of a standard CGL policy. In our
view the answer depends on the facts of the case. For example,
faulty workmanship that is intentional from the viewpoint of the
insured cannot be an “accident” or an “occurrence.” See Lamar
Homes [Inc. v. Mid-Continent Cas. Co.,] 242 S.W.3d [1] at 8–9
[(Tex.2007)]. On the other hand if the faulty workmanship is
“unexpected” and “without intention or design” and thus not
foreseeable from the viewpoint of the insured, then it is an accident
within the meaning of a CGL policy.

{¶ 31} A deliberate act—such as performing construction work—can
have accidental consequences. “[A] deliberate act, performed negligently, is an
accident if the effect is not the intended or expected result; that is, the result
would have been different had the deliberate act been performed correctly.”
Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex.2007).
{¶ 32} The majority relies on an Arkansas case and some Ohio appellate
cases that seem to say that defective workmanship that results in damage only to
the work product itself cannot constitute an occurrence. But the character of the
damage is immaterial in regard to the threshold question of whether faulty
construction is an occurrence: “The CGL policy * * * does not define an
‘occurrence’ in terms of the ownership or character of the property damaged by
the act or event. Rather, the policy asks whether the injury was intended or
fortuitous, that is, whether the injury was an accident.” Id. Cases that focus on the
type of damage resulting from faulty construction do not truly address the issue of
whether there has been an “occurrence”:

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The reasoning found in these cases simultaneously fails to
evaluate the policy as a whole and collapses what should be a
separate and specific analysis of the policy exclusions into the
coverage grant analysis of the term “occurrence.” By focusing on
the kind of property damage alleged to determine whether there
has been an “occurrence,” these decisions improperly apply the
policy exclusions to determine whether there has been an
“occurrence.”

(Emphasis sic; footnote omitted.) Clifford J. Shapiro, Point/Counterpoint:
Inadvertent Construction Defects Are an "Occurrence" under CGL Policies, 22
Construction Lawyer 13, 17 (Spring 2002).
{¶ 33} The better-reasoned Ohio appellate cases recognize that a CGL
policy is not the equivalent of a performance bond but also recognize that

the rationale for [that] proposition is not that the allegations of negligent
construction or design practices do not fall within the broad coverage for
property damage caused by an occurrence, but that * * * the damages
resulting from such practices are usually excluded from coverage by the
standard exclusions found in such policies.

Erie Ins. Exchange v. Colony Dev. Corp., 136 Ohio App.3d 406, 414, 736 N.E.2d
941 (1999). In Erie Ins. Exchange v. Colony Dev. Corp., 136 Ohio App.3d 419,
422, 736 N.E.2d 950 (2000), fn. 1, the court pointed out the illogic of basing a
determination of whether a defect is an occurrence on what property was
damaged:

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 January Term, 2012

The logical basis for the distinction between damage to the
work itself (not caused by an occurrence) and damage to collateral
property (caused by an occurrence) is less than clear. Both types
of property damage are caused by the same thing—negligent or
defective work. One type of damage is no more accidental than
the other. * * * [T]he basis for the distinction is not found in the
definition of occurrence but by application of the standard “work
performed” and “work product” exclusions found in a
[c]ommercial general liability insurance policy.

{¶ 34} As pointed out by the court in Lee Builders, Inc. v. Farm Bur. Mut.
Ins. Co., 281 Kan. 844, 856, 137 P.3d 486 (2006), exclusions for work product
and work performed exist because the initial broad grant of coverage for
occurrences includes damage caused by accidental defective workmanship:

“A court need only ask why the CGL policy includes an
exclusion for property damage to the insured’s own work and that
of its subcontractors to understand that it would be nonsensical for
the policy to include such a provision if this kind of property
damage could never be caused by an ‘occurrence’ in the first place.
A court need only ask why the CGL policy specifically includes an
express exception to the ‘your work’ exclusion for property
damage arising out of the work of a subcontractor to understand
that this kind of property damage must be included in the broad
scope of the term ‘occurrence’ in the coverage grant, and that the
coverage determination for this kind of property damage must be
made based on the construction-specific policy exclusions.”
(Emphasis added.)

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Id., quoting Clifford J. Shapiro, The Good, the Bad, and the Ugly: New State
Supreme Court Decisions Address Whether an Inadvertent Construction Defect Is
an “Occurrence” under CGL Policies, 25 Constr. Law. 9, 12 (Summer 2005).
{¶ 35} If coverage were inappropriate in this case, it would be by
operation of the policy’s exclusions, “not because a loss actionable only in
contract can never be the result of an ‘occurrence’ within the meaning of the
CGL's initial grant of coverage. This distinction is sometimes overlooked, and
has resulted in some regrettably overbroad generalizations about CGL policies
* * *.” Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis.2d 16, 2004 WI 2,
673 N.W.2d 65, ¶ 39.
Conclusion
{¶ 36} The majority in this case makes an overbroad generalization about
CGL policies in Ohio. Answering a question it should not even be answering, the
majority misinterprets the contract and misapplies Ohio law, leaving us on the
wrong side of the divide of states that have considered this question.
Accordingly, I dissent.
__________________
Davis & Young and Richard M. Garner, for petitioner.
______________________

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