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Ohio Supreme Court Rules Defective Construction is not an “Occurrence”

Blogs, Insurance Coverage

In Westfield Ins. Co. v. Custom Agri Sys., Inc., No. 2011-186 (Ohio 2012), the Ohio Supreme Court followed the trend among other state courts and held, that claims of defective construction or workmanship brought by a property owner were not claims for “property damage” caused by an “occurrence” under a commercial general liability (“CGL”) policy.

Custom Agri Systems (“Custom”) was a subcontractor on a project for PSD Development (“PSD”). Custom constructed a defective steel grain bin for PDS and PDS sued Custom for defective construction. Thereafter, Custom sought coverage from its insurer, Westfield Insurance Company (“Westfield”). Westfield denied coverage on the grounds that none of the claims against Custom sought compensation for “property damage” caused by an “occurrence” and therefore, none of the claims were covered under the CGL policy. 

The trial court granted summary judgment for Westfield. On appeal, the United States Court of Appeals for the Sixth Circuit certified two questions of state law to the Ohio Supreme Court: (1) whether a claim for defective construction constitutes a claim for “property damage” caused by an “occurrence” under a CGL policy and, (2) if such claims are considered “property damage” caused by an “occurrence” does the exclusion in the insurance policy preclude coverage for claims for defective construction.

The State Supreme Court acknowledged that under the CGL policy at issue, the term “occurrence” was defined as “an accident” and the Court giving “accident” its natural and commonly accepted meaning, defined “accident” as unexpected, as well as unintended. The Court went on to find that in the construction context, “faulty workmanship claims generally are not covered, except for consequential damages.” Ultimately, the Court held that the claims for faulty workmanship in this matter were not accidental and the CGL policy did not provide coverage to Custom for its alleged defective construction. 

Having answered the first question in the negative, the Court found the second certified question moot and did not address the issue of whether the contractual liability exclusion in the CGL policy which excluded, “property damage for damages by reason of the assumption of liability in a contract or agreement” applied to claims for defective construction.