The opinion
[Cite as Ohio N. Univ. v. Charles Constr. Servs., Inc., 2017-Ohio-258.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HANCOCK COUNTY
OHIO NORTHERN UNIVERSITY,
PLAINTIFF-APPELLANT,
v. CASE NO. 5-16-01
CHARLES CONSTRUCTION
SERVICES, INC.,
DEFENDANT-APPELLANT,
-and- OPINION
CINCINNATI INSURANCE COMPANY,
DEFENDANT-APPELLEE.
Appeal from Hancock County Common Pleas Court
Trial Court No. 2012 CV 00564
Judgment Reversed and Cause Remanded
Date of Decision: January 23, 2017
APPEARANCES:
Allen L. Rutz for Appellant, Ohio Northern University
David P. Kamp for Appellant, Charles Construction Services, Inc.
David W. Orlandini for Appellee, Cincinnati Insurance Company
Case No. 5-16-01
SHAW, J.
{¶1} Plaintiff-appellant, Ohio Northern University (“ONU”), and defendant-
appellant and third-party plaintiff, Charles Construction Services, Inc. (“CCS”),
appeal the December 18, 2015 judgment of the Hancock County Court of Common
Pleas granting the motion for summary judgment filed by appellee, Cincinnati
Insurance Company (“CIC”), and finding that CIC does not owe a duty to defend
and indemnify CCS against the claims brought by ONU based upon property
damage resulting from defective work performed by CCS’s subcontractors. As a
result of the trial court’s ruling, CIC was terminated from the underlying action. On
appeal, both ONU and CCS claim that the trial court erred when it determined that
the Commercial General Liability (“CGL”) policy purchased by CCS from CIC did
not provide coverage.
Relevant Facts
{¶2} In 2008, ONU entered into a contract with CCS for the construction of
“The Inn, a new luxury hotel and conference center on ONU’s Campus, including a
57,000 square feet building consisting of guest rooms, meeting rooms, a kitchen, a
laundry, a spa, a front desk lobby, an office area, and support areas.” (Doc. No. 132
at 2-3).
{¶3} In 2011, after construction on The Inn was complete, ONU discovered
evidence of water intrusion and moisture damage to the wall coverings, dry wall,
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insulation, and wooden sheathing in several guest rooms and emerging evidence of
moisture damage on wall coverings in other rooms and in one stairwell. Further
investigation revealed extensive water intrusion and moisture damage in virtually
all areas of The Inn’s exterior walls. In the course of remediating the water damage,
ONU discovered additional, serious structural defects. The repairs included
replacing extensive areas of water-damaged wood sheathing and rim joists,
necessitating complete removal and replacement of the brick and masonry façade.
Procedural Background
{¶4} On October 25, 2012, ONU initiated this lawsuit against CCS, alleging
breach of contract, breach of express warranty, breach of implied warranties, and
negligent misrepresentation. ONU sought to recover damages related to the
deficient construction services performed by CCS and its subcontractors. Upon
answering ONU’s complaint, CCS initiated a third-party action against many of its
subcontractors.
{¶5} On October 24, 2013, CIC filed a motion for leave to intervene in the
action, which was subsequently granted. CIC filed a cross-claim for a declaratory
judgment against CCS, asking the trial court to declare that CIC’s policy did not
provide coverage to CCS with respect to any of the claims asserted by ONU, and
that CIC did not owe a duty to defend and indemnify CCS with respect to ONU’s
claims.
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{¶6} On January 30, 2015, CIC filed a motion for summary judgment on its
cross-claim for a declaratory judgment. In support of its motion, CIC relied upon
Westfield Ins. Co. v. Custom Agri Systems, Inc., in which the Supreme Court of Ohio
held “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.” 133 Ohio St.3d 476, 2012-Ohio-4712, ¶ 21.
CIC maintained that because ONU failed to assert claims for “property damage”
caused by an “occurrence” coverage under the CGL policy was not triggered and,
therefore, CIC did not have a duty to defend and indemnify CCS against ONU’s
claims for defective workmanship and misrepresentation. Accordingly, CIC argued
that no genuine issues of material fact existed and that it was entitled to judgment
as a matter of law.
{¶7} On February 13, 2015, ONU filed a cross-motion for summary
judgment, opposing CIC’s motion for summary judgment.1 In an accompanying
memorandum, ONU claimed that CCS did little of the construction work on the
project itself; rather CCS’s subcontractors were the ones who performed much of
the construction and were responsible for the alleged property damage. ONU
argued that the “products-completed operations hazard” included in CIC’s CGL
policy, as well as applicable exceptions to exclusions, specifically provided
1
We note that the record demonstrates that ONU was named as an “additional insured” on CIC’s policy with
CCS.
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coverage for its claims against CCS. ONU maintained that the Supreme Court’s
holding in Custom Agri was not dispositive of the issue raised in this case because
the Custom Agri case did not determine what constitutes an “occurrence” under a
“products-completed operations” policy when an owner alleges claims of “property
damage” caused by the defective workmanship of the insured’s subcontractors.
Therefore, ONU argued that based upon the specific policy language in this CGL,
CIC had a duty to defend and indemnify CCS against its claims.
{¶8} On February 27, 2015, CCS filed a memorandum supporting ONU’s
position that the facts in Custom Agri were distinguishable from the present case,
and that the “products-completed operations” coverage, which is triggered by
“property damage” caused by or to the work of a subcontractor, required CIC to
defend and indemnify it against ONU’s claims.
{¶9} The record reflects that neither CIC’s, ONU’s, nor CCS’s positon with
respect to summary judgment was premised upon a question of fact. Rather, both
CIC and ONU filed cross-motions for summary judgment seeking a declaration on
coverage for ONU’s claims under the CGL.
{¶10} On September 16, 2015, the trial court granted CIC’s motion for
summary judgment and overruled CCS’s motion for the same. The trial court
addressed the arguments raised by CCS and concluded that the holding in Custom
Agri was specifically applicable to the circumstances in this case, regardless of
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whether the defective workmanship was that of the insured or the insured’s
subcontractor. The trial court further concluded that the “products-completed
operations” coverage and related exclusions and exceptions did not operate to
“expand” coverage for “property damage” in the absence of an “occurrence.”
Therefore, the trial court found that it was “constrained to conclude that the CGL
issued in this case does not provide coverage because the subcontractors’ alleged
defective workmanship is not an ‘occurrence.’ ” (Doc. No. 328 at 11).
{¶11} However, even though the trial court’s September 16, 2015 judgment
entry addressed the merits of the cross-motions for summary judgment on the issue
of insurance coverage, it failed to articulate the rights and responsibilities of the
parties implicated by CIC’s declaratory judgment claim. The judgment entry also
failed to include certification of “no just cause for delay” pursuant to Civ.R. 54(B),
and instead stated “all until further order by the court” in the judgment entry,
indicating a lack of a final appealable order due to the trial court’s intention of taking
further action in the case. Consequently, this Court dismissed ONU’s and CCS’s
first appeal on November 13, 2015, based upon the outstanding declaratory
judgment claim, the indication by the trial court in its September 16, 2015 judgment
entry that further proceedings were pending, and the failure to properly invoke our
jurisdiction pursuant to R.C. 2505.02, which only permits us to review final orders.
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{¶12} On December 18, 2015, a subsequent judgment entry was filed
specifically addressing the various grounds set forth in the dismissal entry of this
Court pertaining to CIC’s claim for declaratory judgment. The December 18, 2015
judgment entry included language incorporating the legal conclusions made by the
trial court in its September 16, 2015 judgment entry and expressly declared that CIC
did not owe a duty to defend and indemnify CCS against ONU’s claims for property
damage and repairs of the defects. The judgment entry also terminated the action
as to CIC.
{¶13} ONU and CCS each filed a notice of appeal, asserting the following
assignments of error.
ONU’s Assignment of Error No. I
The trial court erred in concluding that CIC had no duty to
provide insurance coverage to ONU and CCS for the damages
caused by CCS’s subcontractors.
CCS’s Assignment of Error No. I
By granting the motion for summary judgment of appellee The
Cincinnati Insurance Company on the basis that there was no
insurable “occurrence,” the trial court erred in denying
Appellants the contractual benefits of the insurance policy
purchased from CIC.
CCS’s Assignment of Error No. II
By denying the Cross-Motion for Summary Judgment of
Appellant Ohio Northern University on the basis that there was
no insurable “occurrence,” the trial court erred in denying
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Appellants the contractual benefits of the insurance policy
purchased from CIC.
{¶14} Due to the interrelated nature of the assignments of error, we elect to
discuss them together.
{¶15} On appeal, ONU and CCS each challenge the trial court’s reliance on
the Supreme Court of Ohio’s decision in Custom Agri to conclude that coverage for
ONU’s claims related to property damage allegedly caused by the defective
workmanship of CCS’s subcontractors is precluded under the insurance policy
purchased from CIC. Specifically, ONU and CCS argue that CCS purchased
additional “products-completed operations” coverage, which expressly
contemplates and provides coverage for ONU’s claims against CCS and they point
to certain policy provisions in support of their argument that coverage exists.
Standard of Review
{¶16} We review a trial court’s decision on a motion for summary judgment
de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996). Thus, this
court conducts an independent review of the evidence and arguments that were
before the trial court without deference to the trial court’s decision. Brown v. Cty.
Commrs. of Scioto Cty., 87 Ohio App.3d 704, 711 (4th Dist.1993) (citation omitted).
{¶17} Pursuant to Civ.R. 56(C), summary judgment is appropriate only
under the following circumstances: (1) no genuine issue of material fact remains to
be litigated, (2) the moving party is entitled to judgment as a matter of law, and (3)
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viewing the evidence most strongly in favor of the nonmoving party, reasonable
minds can come to but one conclusion, that conclusion being adverse to the
nonmoving party. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 66,
(1978). “When seeking summary judgment on grounds that the non-moving party
cannot prove its case, the moving party bears the initial burden of informing the trial
court of the basis for the motion and identifying those portions of the record that
demonstrate the absence of a genuine issue of material fact on an essential element
of the non-moving party’s claims.” Lundeen v. Graff, 10th Dist. Franklin No. 15AP-
32, 2015-Ohio-4462, ¶ 11, citing Dresher v. Burt, 75 Ohio St.3d 280, 293 (1996).
Once the moving party meets its initial burden, the nonmovant must set forth
specific facts demonstrating a genuine issue for trial. Dresher at 293.
{¶18} The underlying claims pertinent to this appeal are for defective
construction of, or defective workmanship on, The Inn by CCS’s subcontractors.
The present action is one of contract interpretation, as the issue is whether the claims
against CCS of the defective construction or workmanship of its subcontractors fall
within the insurance policy issued by CIC.
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 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.
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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. Custom Agri Sys., Inc., 133 Ohio St. 3d 476, 478–79, 2012-
Ohio-4712, ¶ 8, quoting Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-
Ohio-5849, ¶ 11.
Westfield Ins. Co. v. Custom Agri Sys., Inc.
{¶19} Central to the parties’ argument on appeal is the applicability of the
Supreme Court of Ohio’s decision in Westfield Ins. Co. v. Custom Agri Sys., Inc. to
the facts in the instant case. 133 Ohio St.3d 476, 2012-Ohio-4712. Custom Agri
involved claims asserted in federal district court by a property owner for defective
construction or workmanship of a steel grain bin against the contractor whom the
owner hired to build a feed-manufacturing plant. Custom Agri Sys., Inc., at ¶ 2.
The contractor filed a third-party complaint against Custom Agri, the subcontractor
who built the steel grain bin. Id. Westfield, Custom Agri’s insurer, intervened in
the lawsuit in order to pursue a judgment declaring that it had no duty to defend and
indemnify Custom Agri under the terms of its CGL policy. Id. Westfield argued
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that none of the claims against Custom Agri sought compensation for “property
damage” caused by an “occurrence,” and therefore that none of the claims were
covered under the CGL policy. Id. at ¶ 3. 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. Id.
{¶20} Both Westfield and Custom Agri filed cross-motions for summary
judgment and agreed that Ohio law governed the case. Custom Agri Sys., Inc. at ¶
4. The district court acknowledged that it was an open question under Ohio law
whether defective-construction claims fall under the auspices of a CGL policy. Id.
The district court assumed Custom Agri’s policy covered defective construction and
went on to conclude that coverage for the claims was precluded under an exclusion
in the policy and ruled in Westfield’s favor. Id. Custom Agri appealed to the Sixth
Circuit, who after finding no controlling precedent under Ohio law, certified the
following questions to the Supreme Court of Ohio:
(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?
Custom Agri Sys., Inc., 133 Ohio St. 3d 476, 478, 2012-Ohio-4712, ¶ 6. In
addressing the first certified question the court in Custom Agri analyzed the
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following policy provisions in the CGL, which are identical to the corresponding
provisions contained in the policy issued by CIC in this case.
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
***
SECTION I—COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY
DAMAGE LIABILITY
1. Insuring Agreement
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;”
***
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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.
***
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.
Custom Agri Sys., Inc., 133 Ohio St. 3d 476, 479, 2012-Ohio-4712, ¶ 9.
{¶21} The Supreme Court discussed the general principles underlying CGL
policies and noted that “[c]ourts 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. [Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d
74, 77 (Mo.1998), quoting James T. Hendrick and James P. Wiezel, The New
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Commercial General Liability Forms—An Introduction and Critique, Fedn. of Ins.
& Corporate Counsel Quarterly 319, 322 (Summer 1986).] 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.” Custom Agri Sys., Inc., 133
Ohio St. 3d 476, 479, 2012-Ohio-4712, ¶ 10, quoting Heile v. Herrmann, 136 Ohio
App.3d 351, 353 (1st Dist.1999) (emphasis added).
{¶22} The Supreme Court observed that
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 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.”
Custom Agri Sys., Inc., 133 Ohio St. 3d 476, 479, 2012-Ohio-4712, ¶ 11.
{¶23} Thus, the Supreme Court limited its discussion of the CGL policy
provisions to those previously excerpted to determine whether an insured’s own
defective workmanship constitutes an “occurrence”—i.e., “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.” Id. In resolving this issue, the Supreme Court considered the nature of
the term “accident,” which is undefined in the CGL policy, as connoting something
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“unexpected,” “unintended,” or “fortuitous,” and ultimately concluded that “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.” Id. at ¶¶ 12-14 (emphasis added).
The court was persuaded by the reasoning that “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.” Id. at ¶ 13, citing JTO, Inc. v. State Auto. Mut. Ins. Co., 194 Ohio
App.3d 319, 2011-Ohio-1452, ¶¶ 32-33 (11th Dist.) (emphasis sic).
{¶24} Accordingly, the Supreme Court answered the first certified question
by holding 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,” and declined to answer the second
certified question, finding it moot. Id. at ¶ 21.
CIC’s Policy with CCS
{¶25} On appeal in this case, ONU and CCS claim that the holding in Custom
Agri does nothing more than confirm the well-established principle that CGL
policies are not intended to protect against a contractor’s own defective work. ONU
and CCS assert that a different issue is raised in this case from the one addressed in
Custom Agri. Here, ONU’s claims against CCS involve allegations of “property
damage” caused by the defective work of CCS’s subcontractors that arose after the
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project was completed. ONU and CCS argue that there are additional provisions
in the CGL policy, which were not implicated in Custom Agri, that are specifically
triggered by the claims in this case and demonstrate that there is coverage under the
insurance agreement between CCS and CIC.
{¶26} For its part, CIC maintains that there is no distinction in the application
of the Custom Agri holding between claims involving the defective workmanship
of the insured and claims involving the defective workmanship of the insured’s
subcontractor. Therefore, CIC asserts that the Custom Agri case stands for the
expansive proposition that all claims for defective workmanship, regardless of who
performed it, are barred from coverage under a CGL policy because such claims can
never constitute an “occurrence.” Notably, this is also the same rationale used by
the trial court in declaring that CIC had no duty under the CGL to defend and
indemnify CCS against ONU’s claims.
{¶27} We next turn to the CGL policy at issue in this case to determine
whether the trial court erred in relying solely upon Custom Agri to conclusively
determine as a matter of law that CIC does not have a duty to defend and indemnify
CCS against ONU’s claims. “The fundamental goal when interpreting an insurance
policy is to ascertain the intent of the parties from a reading of the policy in its
entirety and to settle upon a reasonable interpretation of any disputed terms in a
manner designed to give the contract its intended effect. ” Laboy v. Grange Indemn.
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Ins. Co., 144 Ohio St. 3d 234, 236, 2015-Ohio-3308, ¶ 8, citing Burris v. Grange
Mut. Cos., 46 Ohio St.3d 84, 89 (1989). “Words and phrases must be given their
plain and ordinary meaning ‘unless manifest absurdity results, or unless some other
meaning is clearly evidenced from the face or overall contents of the instrument.’ ”
Id., quoting Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, (1978),
paragraph two of the syllabus.
{¶28} Similar to the CGL policy at issue and analyzed in Custom Agri, the
CGL issued by CIC in this case contains the following provisions regarding
coverage of claims.
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
***
SECTION I—COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY
DAMAGE LIABILITY
1. Insuring Agreement
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:
***
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(2) Our right and duty to defend ends when we have used up the
applicable limit of insurance in the payment of judgments or
settlements under SECTION I—COVERAGES, COVERAGE A.
BODILY INJURY AND PROPERTY DAMAGE LIABILITY;
SECTION I—COVERAGES, COVERAGE B. PERSONAL
AND ADVERTISING INJURY LIABILITY; or medical
expenses under SECTION I-COVERAGES, COVERAGES C.
MEDICAL PAYMENTS.
***
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;”
In “Section V—Definitions,” the CGL policy defines the terms “occurrence” and
“property damage” to mean the following:
16. “Occurrence” means an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.
***
20. “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.
Plainly stated, the CGL policy issued by CIC in this case will cover “property
damage” caused by an “occurrence.” However, our inquiry does not stop here. We
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must review the entire contract and decide if there are any other provisions which
speak to the claims at issue in this case—specifically, claims for “property damage”
caused by the defective workmanship of the insured’s subcontractor after the project
is completed.
{¶29} This leads us to examine several exclusions and certain significant
exceptions to those exclusions contained in CIC’s policy. At the outset we note that
“an exclusion in an insurance policy will be interpreted as applying only to that
which is clearly intended to be excluded.” Hybud Equip. Corp. v. Sphere Drake
Ins. Co., Ltd., 64 Ohio St.3d 657, 665 (1992) (emphasis sic). With this mind, we
turn to the policy language implicated in this case.
SECTION I—COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY
DAMAGE LIABILITY
***
2. Exclusions:
This insurance does not apply to:
***
j. Damage to Property
“Property damage” to:
***
(5) That particular part of real property on which you or any
contractors or subcontractors working directly or indirectly
on your behalf are performing operations, if the “property
damage” arises out of those operations; * * *
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{¶30} It is important to note that exclusion j(5) is stated in the present tense
and clearly applies to work in progress. Thus, under this policy, faulty workmanship
during construction is the responsibility of the insured, regardless of whether the
insured or a subcontractor is performing the work. However, the record clearly
establishes, and it is uncontested by the parties, that ONU’s claims arose after
construction on The Inn was complete. Therefore, the exclusion in j(5) does not
apply to the instant case. 2 The next exclusion under j(6) states:
2. Exclusions:
This insurance does not apply to:
***
j. Damage to Property
“Property damage” to:
***
(6) That particular part of any property that must be
restored, repaired or replaced because “your work”
was incorrectly performed on it.
But, note that the following paragraph creates an exception to the j(6) exclusion:
2
Notably, the exclusion from coverage in j(5) is consistent with the analysis in Custom Agri and the Supreme
Court’s reliance in that case upon Essex Ins. Co. v. Holder, in which the Arkansas Supreme Court reached
the same result in resolving the question of whether “defective construction or workmanship is an ‘accident’
and, therefore, an ‘occurrence’ within the meaning of commercial general liability insurance policies.” Essex,
370 Ark. 465, 467, 261 S.W.3d 456, 457 (2008). In Essex, homeowners filed suit against a homebuilder
“before the construction of the home was completed” seeking damages for claims related to the defective
workmanship of the homebuilder’s subcontractors. Essex, 370 Ark. 465, 467, 261 S.W.3d 456, 457
(emphasis added). Therefore, even if the court in Essex had addressed the applicable exclusions in the
insurance agreement, the result of a declaration of no coverage provided under the CGL policy would have
presumably been the same under exclusion j(5).
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Paragraph (6) of this exclusion does not apply to “property
damage” included in the “products-completed operations
hazard.”
In “Section V—Definitions,” the CGL policy defines the terms “your work” and
“products-completed operations hazard” to mean the following:
19. Products-completed operations hazard:
(a) Includes all “bodily injury” and “property damage”
occurring away from premises you own or rent and
arising out of “your product” or “your work” except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been competed or abandoned.
However, “your work” will be deemed completed at the
earliest of the following times:
(a) When all of the work called for in your contract
has been completed or;
(b) When all of the work to be done at the job site has
been completed if your contract calls for work at more
than one job site or;
(c) When that part of the work done at a job site has
been put to its intended use by any person or
organization other than another contractor or
subcontractor working on the same project.
Work that may need service, maintenance, correction,
repair, or replacement, but which is otherwise
complete, will be treated as completed.
b. Does not include “bodily injury” or “property damage”
arising out of:
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(1) The transportation of property, unless the injury
or damage arises out of a condition in or on a
vehicle not owned or operated by you, and that
condition was created by the “loading or
unloading” of that vehicle by any insured;
(2) The existence of tools, uninstalled equipment or
abandoned or unused materials; or
(3) Products or operations for which the classification,
listed in the Declarations or in a schedule, states
that products-completed operations are included.
** *
26. “Your work”
a. Means:
(1) Work or operations performed by you or on your
behalf and;
(2) Materials, parts or equipment furnished in
connection with such work or operations.
b. Includes:
(1) Warranties or representations made at any time
with respect to the fitness, quality, durability,
performance, or use of “your work”; and
(2) The providing of or failure to provide warnings or
instructions.
{¶31} Recapping the foregoing provisions, under exclusion j(6), there is no
coverage under the CGL policy for “property damage” to “[t]hat particular part of
any property that must be restored, repaired or replaced because “your work”
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[regardless of whether it was performed by the insured or on the insured’s behalf—
i.e., a subcontractor] was incorrectly performed on it.” However, the exception to
exclusion j(6) restores such coverage if the “property damage” is included in the
“products-completed operations hazard.”
{¶32} The record further suggests that the products-completed operations
coverage applies in this case because: (1) the declaration pages and premium audits
issued by CIC to CCS indicate that specific, additional premium payments were
made for the “products completed” coverage and; (2) construction on The Inn was
complete when ONU’s claims against CCS arose. 3
{¶33} Finally, there is another and even more specific provision in the CGL
policy issued by CIC in this case that involves an exclusion for “property damage”
to “your work” with an express exception to that exclusion when the work is
performed by a subcontractor:
2. Exclusions:
This insurance does not apply to:
***
[L]. Damage to Your Work:
3
The declarations page for the insurance period effective May 2, 2006, includes a “products-completed
operations aggregate limit” of two million dollars. The same declarations page indicates that $7,793.00 was
specifically assessed by CIC for certain “products/completed operations” classifications. The insurance
agreement between CCS and CIC indicates that CIC would perform premium audits and adjust CCS’s
premium. CCS claims that the premium adjustments were based, in part, on the dollar volume of completed
work and the potential repair costs associated with that work. In a subsequent declarations page issued on
May 2, 2009, after three years of construction, the amount specifically assessed for “products/completed
operations” was increased to $27,308.00.
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“Property damage” to “your work” arising out of it or any
part of it and included in the “products-completed
operations hazard.”
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.
(Emphasis added).
{¶34} In sum, the exception to exclusion [L] above restores coverage under
the products-completed operations hazard for work that was done by a subcontractor
or if the subcontractor’s work itself was damaged. Thus, according to the specific
exceptions to exclusion j(6) and exclusion [L], the products-completed operations
coverage applies when: (1) the project was completed at the time the claim arose
and; (2) the claim involved “property damage” caused by work performed on the
insured’s behalf by a subcontractor—which are the precise allegations underlying
ONU’s claims against CCS.
{¶35} CIC urges us to accept the position that the Custom Agri case
establishes that all “property damages” arising from defective workmanship—
regardless of who performed it—can as a matter of law never constitute an
“occurrence,” and that as a result any remaining or additional provisions, including
those for which an additional premium may have been paid, are in essence moot and
cannot trigger coverage under any circumstances. However, in making this
argument CIC cannot reconcile the fact that its decision to include the entire
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products-completed operations segment of the policy together with exclusions j(6)
and [L] and their corresponding exceptions in the CGL that it issued to CCS, without
a qualifying endorsement, is in direct conflict with its expansive interpretation of
the Custom Agri case regarding the definition of an “occurrence.” See U.S. Fire Ins.
Co. v. J.S.U.B., 979 So.2d 871, 891 (Florida Sup. Ct. 2007) (finding coverage under
identical provisions in the CGL and stating that “if the insurer decides that this is a
risk it does not want to insure, it can clearly amend the policy to exclude coverage,
as can be done simply by * * * eliminating the subcontractor exception * * * ”); see,
also, Lamar Homes Inc. v. Mid-Continent Casualty Company, 242 S.W.3d 1, 12
(Texas Sup. Ct.) (noting a that “the Insurance Services Office has issued an
endorsement that may be included in the CGL to eliminate the subcontractor
exception to the “your-work” exclusion”).
{¶36} We further find it noteworthy that CIC has failed to sufficiently
explain on appeal what meaning exclusions j(6) and [L], and their corresponding
exceptions, would have—if any—in light of its sweeping application of the Custom
Agri holding to the circumstances presented in this case. It is well-settled that
[w]hen interpreting a contract, we will presume that words are used for a specific
purpose and will avoid interpretations that render portions meaningless or
unnecessary.” Wohl v. Swinney, 118 Ohio St.3d 277, 2008-Ohio-2334, ¶ 22, citing
State v. Bethel, 110 Ohio St.3d 416, 2006-Ohio-4853, ¶ 50. Thus, if we were to
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Case No. 5-16-01
accept CIC’s position that “property damage” arising after the project is completed,
which was caused by the defective workmanship of the insured’s subcontractor can
never constitute an “occurrence,” we would in effect be rendering meaningless these
additional and specifically bargained for provisions in the policy.
{¶37} We find it persuasive that other jurisdictions when confronted with the
same question as the one before us have construed nearly identical CGL policy
provisions to permit coverage for “property damage” occurring after the work is
completed, which was caused by the faulty work an insured’s subcontractor. In
doing so, these jurisdictions have concluded that the defective work performed by
an insured’s subcontractor may constitute an “occurrence” triggering coverage
under the standard-form CGL policy. See e.g., National Surety Corporation v.
Westlake, 880 N.W.2d 724, 740-42 (Iowa Sup. Ct., 2016) (finding an insurable
“occurrence” under identical provisions of the CGL policy involving resulting water
and moisture damage caused by the defective work of the insured’s subcontractor
and stating that “[i]t would be illogical for an insurance policy to contain an
exclusion negating coverage its insuring agreement did not actually provide or an
exception to an exclusion restoring it”); Cherrington v. Erie Insurance Property and
Casualty, 231 W.Va. 470 (2013); Sheehan Construction Company, Inc. v.
Continental Casualty Company, 935 N.E.2d 160, 171-72 (Indiana Sup. Ct. 2010)
(determining that a CGL policy containing the subcontractor exception to the “your
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Case No. 5-16-01
work” exclusion covered water damage caused by the defective work of the
insured’s subcontractor); see also Lamar Homes Inc., 242 S.W.3d at 12 (“By
incorporating the subcontractor exception into the ‘your-work’ exclusion, the
insurance industry specifically contemplated coverage for property damage caused
by a subcontractor’s defective performance”).
{¶38} In Westlake, the Supreme Court of Iowa not only concluded that
defective work performed by an insured’s subcontractor may constitute an
“occurrence” triggering coverage under the CGL policy, but it also analyzed that
state’s prior case law which held, similar to the Supreme Court of Ohio’s holding in
Custom Agri, that an insured’s own defective work did not constitute an
“occurrence” under the CGL policy. The court in Westlake determined that these
two conclusions were reconcilable due to the factual distinction in the prior case
that it was the contractor—i.e., the insured—who performed the defective work,
whereas in Westlake, and as in allegations involved in the instant case, the defective
work was performed by the insured’s subcontractor. The court in Westlake
determined that the same exclusions and exceptions to exclusions which permitted
coverage for the property damage caused by the faulty work of the insured’s
subcontractor were not implicated in the prior case involving the insured’s own
defective work. See Westlake, 880 N.W.2d at 737-38.
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Case No. 5-16-01
{¶39} While we find many of the principles set forth in Westlake to be
relevant and applicable to the case before us, we decline to expressly adopt the
decision of the Iowa Supreme Court in its entirety. In particular, we note that there
is a significant distinction in the procedural posture of that case, in addition to the
fact that the evidence in our case clearly suggests that a separate premium may have
been paid for the products-completed operations provision of the CIC policy.
Nevertheless, we specifically find it persuasive that the Iowa Justices articulated
differing interpretations of law on the basic principle of whether the defective
workmanship of an insured’s subcontractor could trigger coverage under additional
provisions of a CGL policy identical to those in the case before us. See e.g.,
Westlake, 880 N.W.2d at 744 (Justice Waterman dissenting, with Chief Justice Cady
and Justice Mansfield joining the dissent); see, also, Sheehan Construction, 935
N.E.2d at 172-73 (Chief Justice Shepard dissenting, and Justice Sullivan also
dissenting in a separate opinion, with which Chief Justice Shepard joined).
{¶40} However, the decisions of the Supreme Courts of Iowa and Indiana
together with the division among the Justices of those Courts on this fundamental
issue of law clearly establishes that there is a legitimate ambiguity in the specific
language of this insurance policy as to whether the parties’ intended to contract for
coverage involving “property damage” caused by the defective workmanship of
CCS’s subcontractors arising after the project is complete. It is well-established
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Case No. 5-16-01
that “[w]here provisions of a contract of insurance are reasonably susceptible of
more than one interpretation, they will be construed strictly against the insurer and
liberally in favor of the insured.” King v. Nationwide Ins. Co., 35 Ohio St.3d 208
(1988), syllabus.
Disposition
{¶41} In sum, we conclude that the policy provisions set forth above,
together with the supplemental premium classifications set forth in the declarations
page of this policy, all of which clearly appear to contemplate coverage, at the very
minimum create an ambiguity as to whether the parties intended and specifically
contracted for “property damage” caused by a subcontractor’s faulty workmanship
in a completed project to either constitute an “occurrence” or, notwithstanding the
definition of an “occurrence,” to be independently covered via the insertion of
specific exceptions to general exclusions within this particular CGL policy. As
such, and in either event, we must liberally construe these policy provisions in favor
of the insured.
{¶42} For the reasons stated above, we conclude that the trial court erred
when it declared that CIC had no duty to defend and indemnify CCS against ONU’s
claims under the CGL policy issued by CIC. Accordingly, we sustain the
assignments of error, reverse the judgment of the trial court, and remand the cause
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Case No. 5-16-01
for further proceedings consistent with this opinion.
Judgment Reversed and
Cause Remanded
FROELICH, J., concurs.
** Judge Jeffrey E. Froelich of the Second District Court of Appeals, sitting by
Assignment of the Chief Justice of the Supreme Court of Ohio.
ROGERS, J., dissents.
{¶43} I must respectfully dissent from the opinion of the majority because I
do not believe ONU and CCS can appeal from the underlying entry.
{¶44} On September 16, 2015, the trial court issued a “Decision and Order,”
granting CIC’s motion for summary judgment and denying ONU’s cross-motion for
summary judgment. (Docket No. 328). ONU and CCS appealed, but the appeal
was ultimately dismissed for lack of a final appealable order. Ohio N. Univ. v.
Charles Constr. Servs., Inc., et al, 3d Dist. Hancock No. 5-15-29 (Nov. 13, 2015).
{¶45} On December 18, 2015, the trial court issued an “AGREED
JUDGMENT ENTRY DISMISSING [CIC].” It stated:
***
CIC [m]oved for [s]ummary [j]udgment on January 20, 2015 on the
issue of insurance coverage. The [c]ourt having decided CIC’s
[m]otion for [s]ummary [j]udgment and the cross-motion for
summary judgment filed by ONU, and being fully advised in the
premises, hereby incorporates its Decision and order dated September
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Case No. 5-16-01
16, 2015 (the “Decision”) herein. Now therefore, it is hereby
ORDERED, ADJUDGED, AND DECREED:
1. CIC does not owe a duty to defend or indemnify CCS against
claims for repair of defects in the work performed by CCS’s
employees in this action.
2. The reference to Products Completed Operations in CCS’s
commercial general liability insurance policy with CIC does not
expand coverage beyond the stated coverage for “property damage”
caused by an “occurrence.”
3. CIC does not owe a duty to defend and indemnify CCS against
claims for property damage occurring after completion of
construction and caused by the defective work performed by CCS’s
employees in this action.
4. CIC does not owe a duty to defend or indemnify CCS against
claims for repair of defects in the work performed by CCS’s
subcontractors in this action.
5. CIC does not owe a duty to defend or indemnify CCS against
claims for property damages occurring after completion of
construction and caused by the defective work performed by CCS’s
subcontractors in this action.
***
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED, that
pursuant to R.C. 2505.02, all claims by CIC being fully decided, this
Entry terminated this action as to CIC, and is a final appealable order.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED, that
there is no just reason for delay, and thus, this Entry is a final and
appealable judgment pursuant to Rule 54(B) of the Ohio Rules of
Civil Procedure.
(Docket No. 385, p. 2).
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Case No. 5-16-01
{¶46} The agreed judgment entry was signed by counsel for ONU, CCS, and
CIC under the phrase “AGREED TO BY.” (Id. at p. 3).
{¶47} “An agreed judgment entry is a contract that is reduced to judgment
by a court.” Sovak v. Spivey, 7th Dist. Mahoning No. 02 CA 167, 2003-Ohio-6717,
¶ 25, citing Spercel v. Sterling Industries, Inc., 31 Ohio St.2d 36, 39 (1972). The
parties to an agreed judgment are bound “as if the merits had been litigated.” Id.,
citing Gilbraith v. Hixson, 32 Ohio St.3d 127, 129 (1987).
“[A] party to a consent decree or other judgment entered by consent
may not appeal unless it explicitly reserves the right to appeal. The
purpose of a consent judgment is to resolve a dispute without further
litigation, and so would be defeated or at least impaired by an appeal.
The presumption, therefore, is that the consent operates as a waiver of
the right to appeal. It is because the parties should not be left guessing
about the finality and hence efficacy of the settlement that any
reservation of a right to appeal should be explicit.”
Deutsche Bank Natl. Trust Co. Americas v. Weber, 12th Dist. Butler No. CA2009-
10-264, 2010-Ohio-1630, ¶ 14, quoting Tradesmen Internatl., Inc. v. Kahoe, 8th
Dist. Cuyahoga No. 74420, 2000 WL 283081, * 7 (Mar. 16, 2000).
{¶48} “Of course, an agreed judgment entry is only binding on those parties
entering into the agreement, assuming that those parties had the legal capacity to
enter into a contract: ‘[I]f a party has not agreed to the judgment * * * it can hardly
be said to be binding on that party.’ ” Sovack at ¶ 26, quoting Hayes v. White, 7th
Dist. Columbiana No. 01 CO 00, 2001 WL 1568866, *4 (Dec. 3, 2001).
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Case No. 5-16-01
{¶49} In their supplemental briefs, the parties claim that the entry was
drafted in accordance with Loc.R. 1.21(A) of the Court of Common Pleas of
Hancock County, General Division and does not reflect an agreement that CIC had
no duty to defend and indemnify CCS under the terms of CCS’s insurance policy.
{¶50} Loc.R. 1.21(A) of the Court of Common Pleas of Hancock County,
General Division provides,
Counsel for the party in whose favor a judgment is rendered, or who
is directed to do so by the Court, shall within ten (10) days thereafter,
unless further time be given by the Court, prepare and submit a
proposed judgment entry to opposing counsel who shall approve or
reject it within five (5) days after its receipt. Within that five-day
period, any counsel for a party objecting to a proposed judgment entry
shall submit to the counsel who prepared the judgment entry a written
letter or memorandum setting forth the bases of objection. If, within
five (5) days of the notice of objection, the parties or counsel are
unable to resolve the differences and submit to the Court an approved
judgment entry, then either party or both may submit proposed
judgment entries to the Court with a motion to journalize the judgment
entry. In the absence of counsel’s approval, the Judge may approve
judgment entries in accordance with the record made of the
proceedings.
{¶51} Proposed judgment entries are also discussed in the Ohio Rules of
Civil Procedure. Civ.R. 58(A)(2) provides, “Approval of a judgment entry by
counsel or a party indicates that the entry correctly sets forth the verdict, decision,
or determination of the court and does not waive any objection or assignment of
error for appeal.” The Staff Note explains,
[T]he rule was added in 1995 and is intended to address the decision
of the Eighth District Court of Appeals in Paletta v. Paletta (1990),
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Case No. 5-16-01
68 Ohio App.3d 507. In Paletta, the court of appeals held that the
appellant waived any objection to the judgment of the trial court when
his attorney signed a proposed judgment entry and failed to file
objections as required by local rule of court, notwithstanding the
attorney’s assertion that he did not intend to approve the entry but only
to acknowledge its receipt. The 1995 amendment indicates that a
party’s approval of a proposed judgment entry only reflects agreement
that the entry correctly sets forth the decision of the court and does
not constitute a waiver of any error or objection for purposes of
appeal.
{¶52} Here, there is no evidence in the record to suggest that the agreed
judgment entry was actually a proposed judgment entry. Unlike the types of entries
discussed in Loc.R. 1.21(A) and Civ.R. 58(A)(2), the entry’s caption states,
“AGREED JUDGMENT ENTRY DISMISSING [CIC].” (Docket No. 385, p. 1).
It “ORDER[S], ADJUDGE[S], AND DECREE[S]” that CIC has no duty to defend
or indemnify CCS under the terms of CCS’s insurance policy, and it is signed by
counsel for ONU, CCS, and CIC under the phrase “AGREED TO BY.” (Id. at p.
2-3). Lastly, it is signed by the trial court and journalized by the Hancock County
Clerk of Courts.
{¶53} There is no rule of civil procedure governing the creation of an agreed
judgment entry or limiting its scope. Thus, an appellate court must look to the
entry’s language and the evidence in the record to determine whether the entry is an
agreed judgment entry. While the parties claim in their supplemental briefs that
they did not intend to create an agreed judgment entry, their briefs are not evidence.
We are bound by the evidence in the record, and in this case, the evidence reflects
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Case No. 5-16-01
a judgment entry that was agreed to by all parties. If this was not the parties’ intent,
then revision must be attempted in the trial court. It is not a matter for this court to
decide.
/jlr
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