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Wednesday, January 02, 2013 04:24 am


A recent Ohio Supreme Court decision has all but closed the door to insurance coverage claims involving construction defects, at least where they directly relate to and are not collateral to the work.

Economic losses are not collateral damage

In 2011, an Ohio district court faced the question of whether defective workmanship claims are "property damage" claims created by an "occurrence" under a CGL policy. Younglove Construction, LLC v. PSD Development, LLC, et al, 2011 U.S. Dist. Lexis 9029 (N.D. Ohio 2011). But the court did not have an answer to that question. Instead, it considered whether the policy's contractual liability exclusion precluded coverage for defective workmanship claims--and found that it did.

The facts of the case showed that the subcontractor had constructed a defective steel grain bin for an animal feed manufacturing plant project. The owner's damages resulted from its loss of storage space and its subsequent inability to purchase corn at optimal seasonal prices. Thus, the damages directly related to and were not collateral to the sub's defective work, the district court found. Further, the court reasoned, because the damages sounded in contract, they were excluded by the contractual liability exclusion. The lesson learned: Claims for economic losses deriving from defective construction are not the consequential/collateral damages Ohio courts consider covered by CGL policies. (See CCM, Vol.33, No.4, p.26 for a full discussion of the case.)

Damage to the work only is not an 'occurrence'

More recently, the Ohio Supreme Court took up the district's unanswered question: whether defective work constitutes a CGL "occurrence" in Westfield Ins. Co. v. Custom Agri Sys.,

Inc., Slip [...]

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