Ohio N. Univ. v. Charles Constr. Servs., Inc.

77 N.E.3d 538

2017 Ohio 258

OHIO NORTHERN UNIVERSITY, Plaintiff–Appellant,

v. CHARLES CONSTRUCTION SERVICES, INC., Defendant–Appellant,andCincinnati Insurance Company, Defendant–Appellee.

No. 5–16–01.

Court of Appeals of Ohio, Third District, Hancock County.

Jan. 23, 2017.

Allen L. Rutz, Columbus, for appellant, Ohio Northern University.

David P. Kamp, Cincinnati, for appellant, Charles Construction Services, Inc.

David W. Orlandini, for appellee, Cincinnati Insurance Company.

OPINION

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, 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.

{¶ 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, 979 N.E.2d 269, ¶ 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 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 position 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 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.

{¶ 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 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, 671 N.E.2d 241 (1996). Thus, this court conducts an independent review of the evidence and...