[Cite as Cincinnati Ins. Co. v. Dorsey Reconditioning, Inc., 2011-Ohio-1499.]
COURT OF APPEALS
COSHOCTON COUNTY, OHIO
FIFTH APPELLATE DISTRICT
THE CINCINNATI INSURANCE CO. JUDGES:
Hon. Sheila G. Farmer, P.J.
Plaintiff-Appellant Hon. W. Scott Gwin, J.
Hon. Patricia A. Delaney, J.
-vs-
DORSEY RECONDITIONING, INC., Case No. 10-CA-11
ET AL.
Defendants-Appellees OPINION
CHARACTER OF PROCEEDING: Appeal from the Court of Common Pleas,
Case No. 2008CI0534
JUDGMENT: Reversed
DATE OF JUDGMENT ENTRY: March 25, 2011
APPEARANCES:
For Plaintiff-Appellant For Defendant-Appellee
RICHARD M. GARNER DANIEL F. GOURASH
1200 Fifth Third Center ROBERT D. ANDERLE
600 Superior Avenue, East ERIC D. BAKER
Cleveland, OH 44114 26600 Detroit Road
Cleveland, OH 44145-2397
Coshocton County, Case No. 10-CA-11 2
Farmer, J.
{¶1} In 2002, Water Management Services, Inc. purchased pipe from appellee,
Clow Water Systems Company, for its water utility project in Florida. Appellee
subcontracted with Dorsey Reconditioning, Inc. to provide surface preparation and
primer for the pipe. Consolidated Coatings, Inc. provided the intermediate and finish
coats.
{¶2} In 2005, Water Management discovered that the primer, intermediate, and
finish coats were flaking off of some sections of the pipe, exposing the pipe to corrosion.
Water Management demanded that appellee fix the situation. Appellee refused.
{¶3} On August 21, 2006, Waste Management filed a complaint in Florida
against appellee and others, claiming breach of contract, breach of implied warranty of
fitness for particular purpose, and breach of implied warranty of merchantability. The
litigation was settled for $800,000.00, with appellee responsible for $407,500.00.
{¶4} Appellee then demanded that Dorsey reimburse appellee $407,500.00
plus all of its litigation expenses related to the Florida litigation. Dorsey was insured
under a commercial general liability policy, policy number CAP 544 22 78, issued by
appellant, Cincinnati Insurance Company. Appellant denied coverage.
{¶5} On August 18, 2008, appellant filed a declaratory judgment action against
appellee and Dorsey, seeking a declaration on whether coverage existed under the
policy. Appellee filed a counterclaim against appellant and a cross-claim against
Dorsey. Thereafter, appellee and Dorsey entered into a consent judgment entry
resolving the cross-claim in the amount of $597,905.00 and assigning appellee Dorsey's
rights under the policy.
Coshocton County, Case No. 10-CA-11 3
{¶6} Appellee filed an amended counterclaim against appellant, claiming seven
causes of action. Both parties filed motions for summary judgment. By judgment entry
filed August 5, 2010, the trial court denied appellant's motion and granted appellee's
motion as to its counterclaim.
{¶7} Appellant filed an appeal and this matter is now before this court for
consideration. Assignment of error is as follows:
I
{¶8} "THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY
DECLARING THAT APPELLANT THE CINCINNATI INSURANCE COMPANY MUST
PROVIDE INSURANCE COVERAGE FOR BREACH OF CONTRACT CLAIMS IN A
CONSTRUCTION DEFECT CASE."
I
{¶9} Appellant claims the trial court erred in granting summary judgment to
appellee and finding that insurance coverage existed under appellee's commercial
general liability policy with appellant. We agree.
{¶10} Summary Judgment motions are to be resolved in light of the dictates of
Civ.R. 56. Said rule was reaffirmed by the Supreme Court of Ohio in State ex rel.
Zimmerman v. Tompkins, 75 Ohio St.3d 447, 448, 1996-Ohio-211:
{¶11} "Civ.R. 56(C) provides that before summary judgment may be granted, it
must be determined that (1) no genuine issue as to any material fact remains to be
litigated, (2) the moving party is entitled to judgment as a matter of law, and (3) it
appears from the evidence that reasonable minds can come to but one conclusion, and
viewing such evidence most strongly in favor of the nonmoving party, that conclusion is
Coshocton County, Case No. 10-CA-11 4
adverse to the party against whom the motion for summary judgment is made. State
ex. rel. Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511, 628 N.E.2d 1377, 1379,
citing Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 327, 4 O.O3d 466, 472,
364 N.E.2d 267, 274."
{¶12} As an appellate court reviewing summary judgment motions, we must
stand in the shoes of the trial court and review summary judgments on the same
standard and evidence as the trial court. Smiddy v. The Wedding Party, Inc. (1987), 30
Ohio St.3d 35.
{¶13} It is appellant's position that there is no insurance coverage for Dorsey
because of its faulty application of the primer to the pipe which resulted in a lateral
cohesive splitting and adhesive failure between the different layers of coatings and
between the primer and the pipe. It is claimed that Dorsey failed to properly clean and
sandblast the pipe to allow the primer to stick: See, Exhibit 5, Mark 10 Resource
Group, Inc. Report at 90, 94.
{¶14} Appellant argues Section I(A) of the policy excludes coverage (Coverage
A). We note the parties appear to agree there is no coverage for appellee's cost for the
remediation of Dorsey's work, but argue over the issue of coverage for the damage to
the pipe and other coatings because of Dorsey's negligent application of the primer to
the pipe. Appellee's Brief at 13.
{¶15} Coverage A includes coverage for "Bodily Injury and Property Damage
Liability" that an insured becomes legally obligated to pay. See, Section I(A)(1)(a).
"Bodily injury" and "property damage" are defined in the policy under Section I(A)(1)(b)
and (c) as follows:
Coshocton County, Case No. 10-CA-11 5
{¶16} "b. This insurance applies to 'bodily injury' and 'property damage' only if:
{¶17} "(1) The 'bodily injury' or 'property damage' is caused by an 'occurrence'
that takes place in the 'coverage territory';
{¶18} "(2) The 'bodily injury' or 'property damage' occurs during the policy
period; and
{¶19} "(3) Prior to the 'coverage term' in which 'bodily injury' or 'property
damage' occurs, you did not know, per Paragraph 1.d. below, that the 'bodily injury' or
'property damage' had occurred or had begun to occur, in whole or in part.
{¶20} "c. 'Bodily injury' or 'property damage' which:
{¶21} "(1) Occurs during the 'coverage term', and
{¶22} "(2) Was not, prior to the 'coverage term', known by you, per Paragraph
1.d. below, to have occurred;
{¶23} "includes any continuation, change or resumption of that 'bodily injury' or
'property damage' after the end of the 'coverage term' in which it first became known by
you."
{¶24} Therefore, for coverage to exist, there must be bodily injury or property
damage and an occurrence. Appellee argues the "occurrence" is defined as "an
accident, including the continuous or repeated exposure to substantially the same
general harmful conditions," and brought its claim against Dorsey in negligence. See,
Appellee's Brief at 11; Definitions, Section V(16).
{¶25} Within the policy at Section I(A)(2) are the following applicable exclusions:
{¶26} "b. Contractual Liability
Coshocton County, Case No. 10-CA-11 6
{¶27} " 'Bodily injury' or 'property damage' for which the insured is obligated to
pay damages by reason of the assumption of liability in a contract or agreement. This
exclusion does not apply to liability for damages:
{¶28} "(1) That the insured would have in the absence of the contract or
agreement; or
{¶29} "(2) Assumed in a contract or agreement that is an 'insured contract',
provided the 'bodily injury' or 'property damage' occurs subsequent to the execution of
the contract or agreement. When a claim for such 'bodily injury' or 'property damage' is
made, we will defend that claim provided the insured has assumed the obligation to
defend such claim in the 'insured contract'. Such defense payments will not reduce the
limits of insurance.
{¶30} "k. Damages to your Product
{¶31} " 'Property damage' to 'your product' arising out of it or any part of it.
{¶32} "l. Damage to Your Work
{¶33} " 'Property damage' to 'your work' arising out of it or any part of it and
included in the 'products-completed operations hazard'.
{¶34} "This exclusion does not apply if the damaged work or the work out of
which the damage arises was performed on your behalf by a subcontractor.
{¶35} "m. Damage to Impaired Property or Property Not Physically Injured
{¶36} " 'Property damage' to 'impaired property' or property that has not been
physically injured, arising out of:
{¶37} "(1) A defect, deficiency, inadequacy or dangerous condition in 'your
product' or 'your work'; or
Coshocton County, Case No. 10-CA-11 7
{¶38} "(2) A delay or failure by you or anyone acting on your behalf to perform a
contract or agreement in accordance with its terms.
{¶39} "This exclusion does not apply to the loss of use of other property arising
out of sudden and accidental physical injury to 'your product' or 'your work' after it has
been put to its intended use."
{¶40} From the language of the insurance policy, there must be an occurrence
and property damage. In appellee's September 29, 2008 cross-claim against Dorsey,
appellee alleged the following in pertinent part:
{¶41} "6. Clow is in the business of producing and selling ductile iron pipe. In or
about 2002, WMSI contracted with Clow to supply primed pipe for the pipeline project.
{¶42} "7. Clow contracted with Dorsey to perform the surface preparation of the
pipe and apply the primer consistent with the specifications for the pipeline project.
{¶43} "9. After installation of the pipeline was complete, the primer as well as the
intermediate and finish coats on certain pieces of pipe began to crack, split, and in
some instances completely fall off the pipe. This splitting, cracking and loss of the top
coats continued to the point that WMSI notified Clow that a substantial number of
sections of the pipeline were in need of repair due to the absence of large portions of
the top coats.
{¶44} "17. Dorsey was negligent in failing to use reasonable care in applying the
primer to the pipe and allowing it to cure properly.
{¶45} "18. As a direct and proximate result of Dorsey's alleged negligence, the
primer failed, causing unexpected damage to the top coats applied by Consolidated and
Coshocton County, Case No. 10-CA-11 8
the pipe WMSI had installed for the pipeline project. The intermediate and finish coats
have been cracked, split, and in some instances have completely fallen off the pipeline.
{¶46} "19. As a further direct and proximate result of Dorsey's alleged
negligence, Clow has been damaged. It has been sued, suffered costs, expenses and
fees, and will be required to pay hundreds of thousands of dollars to repair the damage
to the coatings on the pipe, including replacing the top coats damaged by Dorsey's
negligence."
{¶47} In addition to the negligence claim, the cross-claim alleged breach of
contract for failure to properly prepare the pipe and apply the primer, indemnity, and
contribution for damages.
{¶48} In its October 30, 2009 amended counterclaim against appellant, appellee
alleged the following in pertinent part:
{¶49} "29. WMSI and now Clow have alleged that Dorsey was negligent and its
negligence caused property damage, including but not limited to, damage to the top
coats applied to the pipes by Consolidated and the completed pipeline generally.
{¶50} "30. Clow alleged claims against Dorsey for property damage caused by
an occurrence as defined by the CIC Policy. However, CIC takes the position there has
been no property damage caused by or an occurrence and wrongfully refused and
continues to refuse to provide coverage and indemnification to Dorsey under the CIC
Policy for Clow's claims.
{¶51} "31. There is an actual dispute among the parties as to whether the Clow
Claims and WMSI's and Clow's allegations trigger coverage under the CIC Policy.
Coshocton County, Case No. 10-CA-11 9
{¶52} "32. Accordingly, Clow is entitled to a declaratory judgment in its favor and
against CIC that the claims asserted by WMSI and Clow seek to recover for property
damage caused by an occurrence triggering CIC's obligations to provide defense and
indemnity coverage to Dorsey."
{¶53} As is patently obvious from a review of the claims, appellee's causes of
action are negligence and breach of contract. The very language of the negligence
claim sounds as a claim for breach of contract. Evidently, appellee believes if you call a
claim negligence and use the appropriate words, it is negligence, thereby adopting the
old adage "if it looks like a duck and quacks like a duck, then it probably is a duck."
{¶54} We conclude there is no coverage for the lack of preparation of the pipe
and misapplication of the primer for the following reasons.
{¶55} In Bogner Construction Company v. Field & Associates, Inc., Knox App.
No. 08 CA 11, 2009-Ohio-116, and The Home Insurance Company of Illinois v. OM
Group, Inc., Hamilton App. No. C-020643, 2003-Ohio-3666, this court and our brethren
from the First District examined similar property damage claims and reached the same
conclusion: although there may be a claim for damages to the product resulting in
corrosion, there was no "occurrence" as defined by the policies to create a negligence
claim for property damages resulting from an occurrence.
{¶56} In The Home Insurance Company case, utility poles were damaged due to
the failure of a wood preservative applied to poles. The Home Insurance Company
court found because the damage was to the poles upon which the product was applied,
there was no "property damage" or "physical injury" to the property:
Coshocton County, Case No. 10-CA-11 10
{¶57} "We find no error in the trial court's holding that OMG had failed to
demonstrate the existence of 'property damage.' The claims of the third parties did not
allege that M-Gard had caused 'physical injury to or destruction of tangible property'
under the policy language. As the trial court aptly noted, the gravamen of the
complaints was that M-Gard had failed to adequately protect the utility poles from decay
caused by exposure to natural elements. And while OMG argues that certain claims
involved damage to property other than the poles themselves,***the basis of all the
claims was that M-Gard had simply failed as a preservative. Absent any allegation that
M-Gard had caused physical injury to property, there was no coverage under the first
prong of the 'property damage' clause in the policies." The Home Insurance Company
at ¶10. (Footnote omitted.)
{¶58} Likewise, in Bogner at ¶44-49, this court acknowledged that defective
workmanship did not constitute an "accident" or an "occurrence," and reiterated the
general philosophy that commercial general liability policies do not cover negligent
manufacture:
{¶59} "This Court, in Environmental Exploration Company v. Bituminous Fire &
Marine Insurance, Co., (Oct. 16, 2000), Stark App.No.1999CA00315, a case similar to
the one sub judice, held that defective workmanship does not constitute an accident or
an 'occurrence' under a Commercial General Liability policy:
{¶60} " 'Clearly, the complaint in the case sub judice***alleges faulty
workmanship in the construction of the pipeline.***in its complaint...Appellants did not
seek recovery for damages caused by the ruptured weld. Rather, Appellee Power
Coshocton County, Case No. 10-CA-11 11
Resources sought damages for expenses it incurred, including loss of use, lost profits
and replacements costs, after the pipeline was later shutdown.
{¶61} " ' "It is well established that a general commercial liability policy does not
cover claims of negligent manufacture."***Courts, such as the ones cited above,
generally have held that there 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. For such reason, insurance coverage under general commercial liability policies
is restricted to claims of negligent manufacture resulting in an occurrence. Reynolds
Plastics, supra.
{¶62} " '***
{¶63} " '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', Appellee was not entitled to coverage under such policy. As
was noted by the court in United States Fid. & Guar. Corp. v. Advance Roofing &
Supply Co., Inc. (1989), 788 P.2d 1227, 1233. [W]e recognize that there are some
authorities that appear to conclude that the mere showing of faulty work is sufficient to
bring a claim for resulting damages (of whatever nature) within policy coverage. In our
opinion, these authorities disregard the fundamental nature of a comprehensive general
liability policy...and ignore the policy requirement that an occurrence be an accident. If
the policy is construed as protecting a contractor against mere faulty or defective
workmanship, the insurer becomes a guarantor of the insured's performance of the
Coshocton County, Case No. 10-CA-11 12
contract, and the policy takes on the attributes of a performance bond. We find these
authorities unpersuasive.'
{¶64} " 'We also agree with the court in Heile, supra. that: 'In particular, [general
commercial liability] policies such as the one here are not intended to insure 'business
risks'-risks that are the 'normal, frequent, or predictable consequences of doing
business, and which business management can and should control or manage.' Courts
generally conclude that the policies are intended to insure the risks of an insured
causing damage to other persons and their property, but that the policies are not
intended to insure the risks of an insured causing damage to the insured's own work. 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.' " (Citations
omitted.)
{¶65} In the policy sub judice, under Exclusions, Section I(A)(2)(j)(6), damages
as a result of Dorsey's work, incorrect application of the primer, is excluded:
{¶66} " 'Property damage' to:
{¶67} "That particular part of any property that must be restored, repaired or
replaced because 'your work' was incorrectly performed on it.
{¶68} "***
{¶69} "Paragraph (6) of this exclusion does not apply to 'property damage'
included in the 'products-completed operations hazard'."
{¶70} The Mark 10 Report cited supra specifically found it was Dorsey's own
misapplication of the primer that resulted in a lateral cohesive splitting and adhesive
failure between the different layers of coatings and between the primer and the pipe.
Coshocton County, Case No. 10-CA-11 13
{¶71} Based upon our conclusion that although appellee argues in negligence
the claim is a contractual claim, the specific exclusions of Section I(2)(j)(6), (k), (l), and
(m) apply.
{¶72} Upon review, we find there is no coverage under appellant's policy, and as
a matter of law, appellee's amended counterclaim fails.
{¶73} The judgment of the Court of Common Pleas of Coshocton County, Ohio
is hereby reversed.
By Farmer, J.
Gwin, P.J. and
Delaney, J. concur.
s/ Sheila G. Farmer__________________
_s/ W. Scott Gwin________________
_s/ Patricia A. Delaney________________
JUDGES
SGF/sg 308
Coshocton County, Case No. 10-CA-11 14
IN THE COURT OF APPEALS FOR COSHOCTON COUNTY, OHIO
FIFTH APPELLATE DISTRICT
THE CINCINNATI INSURANCE CO. :
:
Plaintiff-Appellant :
:
-vs- : JUDGMENT ENTRY
:
DORSEY RECONDITIONING, INC., :
ET AL. :
:
Defendants-Appellees : CASE NO. 10-CA-11
For the reasons stated in our accompanying Memorandum-Opinion, the
judgment of the Court of Common Pleas of Coshocton County, Ohio is reversed. Costs
to appellee, Clow Water Systems Company.
s/ Sheila G. Farmer__________________
_s/ W. Scott Gwin________________
_s/ Patricia A. Delaney________________
JUDGES