Properties Magazine March 2017 : Page 45

subcontractors. The contractor’s insur-ance carrier intervened in the lawsuit in an attempt to avoid paying for losses and/or a defense for its insured, the contractor. However, the Third District of Ohio decided that because (1) the damage occurred after the proj-ect was competed and (2) the claims arose from damage caused by work of one of the subcontractors, the damages should be covered by the insurer under the CGL, under the subcontractor exception to the “Products-Completed Operations Hazard.” T he “Pro duct s-Completed Operation Hazard” is an exclusion in a CGL policy. Once a party estab-lishes basic coverage — damages to person(s) or property arising out of an occurrence (accident or continuous exposure) — the party must make sure none of the exclusions operate to pre-vent coverage. However, exceptions to the exclusions may provide cover-age even where there otherwise would not be. Certain exclusions void cover-age for damages (1) due to defective construction of subcontractors where the work is still in progress and (2) due to defective construction of the insured. The “Products-Completed Operations Hazard” excludes cov-erage for completed work of the insured. However, an exception to the “Products-Completed Operations Hazard” definition, excluding the work of subcontractors from work of the insured, would bring the work of subcontractors back under the umbrella of coverage in the CGL. In ONU , the CGL had a “Products-Completed Operations Hazard” provision and also contained a provision excluding the work of subcontractors from the definition of the insured’s work. Accordingly, even though the work was completed and coverage would have been barred by the “Products-Completed Operations Hazard” exception, cover-age was revived under the exception for work of subcontractors. Purchase of and bargain for the subcontractor exception to “Products-Completed Operation Hazard” was particularly important to the Third District of Ohio in finding that there was insurance coverage for the dam-ages. The Third District of Ohio found that application of the Custom Agri rule would render the additional pro-tections provided by the subcontractor exception moot, or void. The exception would be meaningless. Therefore, in order to give the exception meaning, damages to completed work, which are caused by defective work of the insured’s subcontractors, must be excepted from the “Products-Completed Operations Hazard” exclusion. This exception may be an addi-tional cost to the project bottom line, but may be well worth it if damages occur. It is also important to note that even negotiation and/or purchase of the exception to the “Products-Completed Operation Hazard” will not protect a contractor from the costs of repairing its own defective work or from damages caused by sub-contractors’ work during the ongoing operations of a project. Capturing Your Inspiration Northeast Ohio’s Premier Aerial Photography & Videography Provider ■ Real Where do we go from here? Owners: There is hope that owners may be able to look to someone other than a defunct contractor for damages to property that are discovered after completion of the work. By ensuring that construction contracts require contractors to include an exception for the work of subcontractors in the definition of the insured’s work in the “Products-Completed Operation Hazard” in their CGL, owners can expand coverage for defect-related losses. It is also a good idea for owners (and really all parties) to know the party they are contract-ing with (contractor) and to request status as an additional insured on the policy where appropriate. Contractors: Contractors should con-sider obtaining or purchasing exceptions for the work of lower tiers to “Products-Completed Operation Hazard” exclusion in their standard CGL policies. This exception will not protect them from defects in their own work (it is expected that they can perform their job free from defects) but will provide coverage in the case of defective work of a lower tier. Contractors may also consider requiring subcontractors to require the same of their lower tiers. P Mark Rodio and Allison Taller Reich are con-struction attorneys at Frantz Ward LLP in Cleveland. For more information please visit Estate Properties ■ Construction Progression ■ Campus Tours | 360º Photos ■ Corporate/Promotional Videos ■ Full Video Production & Editing Highest Video/Picture Quality 4K Resolution Professional and Reliable Locally Owned and Operated Framed & Canvas Prints Available HQT;QWT.QDD[QT1HğEG9CNNU Utilizing Unmanned Aerial Systems! 440.241.1677 45

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