The Ohio Supreme Court’s October 9, 2018 decision in Ohio Northern University v. Charles Construction Services, Inc., 2018-Ohio-4057 issued a blow to general contractors attempting to obtain insurance coverage under their commercial general liability (CGL) policies for property damage caused by their subcontractor’s faulty work. The Ohio Supreme Court held that faulty work is not “accidental” or “fortuitous,” as contemplated within the policy’s definition of an “occurrence,” and found that the general contractor had no coverage under its CGL policy.

Ohio Northern University (University) sued the general contractor, Charles Construction Services, Inc. (CCS) arising out of a contract to build a luxury hotel and conference center (Project) on the University’s campus. After completion of the Project, the University discovered extensive water damage from hidden leaks and other serious structural defects that it believed were caused by the defective work of CCS and its subcontractors. In response to the University filing suit, CCS sought coverage under its CGL policy, relying on the products/completed operations (PCO) coverage available for claims involving property damage caused by the faulty work of a subcontractor.

Continue Reading Contractors Beware – Ohio Joins Minority of States in Insurance Coverage Row

It is no secret within the construction industry that public-private partnership (P3) project delivery has recently become all the rage.  The demand for infrastructure repairs and improvements is high, and the public dollars needed to fund them are scarce.  P3 projects incorporating public and private funding have, therefore, become a creative delivery alternative that states like Ohio have adopted.  And with new delivery methods comes the need for new legislation to regulate and administer these types of projects.

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The Bonding Requirements

Last month, Ohio Governor John Kasich approved new amendments to the state’s public-private partnership (P3) legislation that could have drastic impacts on subcontractors and suppliers performing work on Ohio P3 projects.  The new law, which goes into effect this September, requires prime contractors to provide both performance and payment bonds on P3 projects in Ohio—a change that subcontractors and suppliers will likely be touting as it will help to secure the payment obligations of prime contractors to their subs.

The Catch

The catch is that the director of the Ohio Department of Transportation (ODOT), Jerry Wray, will have discretion to determine the amount of the bonds.  In other words, the director could fix a bonding amount that is less than the prime contract price, leaving potential bond claimants somewhat exposed to the risk of nonpayment.

The legislation also requires that the performance bond be conditioned on the private entity performing the work according to the agreed upon terms, within the time prescribed, and in conformity with any other terms and conditions that the director requires.  Similarly, the payment bond must be conditioned on the payment for all labor, work performed, and materials furnished in connection with the P3 agreement and any such terms and conditions that director requires.

What Do the Amendments Mean for the Future?

This bonding requirement is a major change to Ohio’s P3 legislation, which is currently silent on bonding.  The new bonding requirement, which gives the director considerable discretion, is markedly different from some of Ohio’s other legislation relating to public construction.   The Ohio Transportation Code, for instance, requires a payment and performance bond for 100% of the contract amount for transportation projects.

Depending on the amount specified by the ODOT director for the payment and performance bonds, starting in September of 2014, contractors farther down the chain on Ohio P3 projects may have little or no payment protection other than directly bringing an action against the contracting party directly upstream.  We will continue to monitor the implementation of the new P3 bonding requirement and how ODOT’s director decides to use his discretion.

Lisa M. Wampler is a Partner in the Construction Group of Cohen Seglias Pallas Greenhall & Furman PC.

Lori Wisniewski Azzara is an Associate at Cohen Seglias Pallas Greenhall & Furman PC. Lori practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.