Ohio Court of Appeals in Case of First Impression Finds that Damages from Contractor's Delay Not Based on an "Accident" or "Occurrence" and Excluded from Coverage
February, 2006
In Westfield Ins. Co. v. Coastal Group, Inc., 2006 WL 120041 (Ohio App. 9th Dist.), the Ohio Court of Appeals held that damages resulting from a construction contractor’s delay were not an “accident” and therefore did not involve an “occurrence” under a CGL policy. The court further held that the “Impaired property” exclusion in the policy similarly precluded coverage for a contractor delay claim.
Facts
Westfield filed a complaint for declaratory judgment that its policy issued to Coastal did not provide coverage on a claim filed by a property owner, Stella Moga, against Coastal based on Coastal’s defective workmanship and its subsequent delay in rectifying the deficiencies. The trial court granted summary judgment to Westfield, finding that the property owner’s claims did not involve an occurrence under the Westfield policy, and the property owner appealed.
Analysis
On appeal, the property owner argued that Coastal’s sub par workmanship and delay caused an “accident” under the policy’s definition of “occurrence” resulting in loss of use of her property and substantial economic loss. The Ohio appellate court disagreed.
The court first noted that the issue of whether delay in rectifying defective workmanship and the resulting damages constituted an occurrence was a matter of first impression for it, and had not yet been addressed by the Ohio Supreme Court.
The appellate court recognized the general proposition that “a commercial general liability policy does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident. Stated differently, a CGL policy will not provide coverage if faulty workmanship is the accident, but will provide coverage if faulty workmanship causes the accident.”
Therefore, the only way that the Westfield CGL policy would provide coverage is if faulty workmanship caused the delays and those delays were considered an accident under the CGL policy. Although the CGL policy did not define “accident,” the appellate court noted that the term was a common word in a written instrument and therefore would be given its ordinary meaning unless manifest absurdity resulted or some other meaning was intended from the document. The court also noted that construction delays were normal, frequent and predictable, and were “business risks” that did not fit within the ordinary meaning of the term “accident.” Rather, according to the court, the repair or replacement of faulty workmanship and the resulting delay was a business expense and not an insurable liability.
The court further noted that an exclusion in the insurance contract similarly reflected the parties’ intent that a delay in completing a construction contract was never intended to be an insurable liability. Exclusion “m” in the policy, “Damage to Impaired Property Not Physically Injured,” excluded:
“Property damage to impaired property or property that has not been physically injured, arising out of:
(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms,….”
The policy defined “Impaired property” as:
“[T]angible property…that cannot be used or less useful because:
(b) You have failed to fulfill the terms of a contract or agreement; if such property can be restored to use by:
(1) The repair, replacement, adjustment or removal of ‘your product’ or ‘your work;’ or
(2) Your fulfilling the terms of the contract or agreement.”
The appellate court found that the claims fell squarely within the parameters of Exclusion “m”. The property owner had claimed property damage in the form of loss of use of her buildings, none of which were physically injured. The damage was done to “impaired property” in that the property was tangible and could not be used due to Coastal’s failure to fulfill its contractual terms, but could be restored to use by Coastal repairing their work or fulfilling the terms of their contract.
Finally, the court rejected the property owner’s argument that Exclusion “m” did not apply because the claim was based on negligence, not a breach of contract: “[w]e find that this argument is simply window dressing clothing a breach of contract claim in terms of negligence. Coastal’s delay, or in other words, its failure to perform, is a prototypical breach of contract” claim. In fact, the property owner had conceded such in her briefing. Accordingly, the court concluded that Exclusion “m” was applicable and precluded coverage.
Learning Point:
This decision teaches that, under Ohio law, the damages resulting from construction contractor delay claims are not an “accident” and therefore do not involve an “occurrence” under a CGL policy. Additionally, the “Impaired property” exclusion in the CGL policy precludes coverage for such contractor delay claims. •
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