Coverage Counselor And RE&C In Review: Fortuity: Defining The Cost Of Doing Business

• Jurisdiction: Ohio,United States
• Law Firm: Brouse McDowell
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Trials & Appeals & Compensation, Construction & Planning
• Author: William A. Peseski
• Published date: 30 May 2023

In 2012, the Ohio Supreme Court in Westfield Ins. Co. v. Custom Agri Sys., Inc.,¹ first defined the "fortuity doctrine," building upon the Court's previous definition of "accidental" within the context of CGL insurance policies'i.e., something "unexpected, as well as unintended."² Adopting the commentary of the doctrine from the 11^th District, the Court opined:

Insurance coverage is bottomed on the concept of fortuity. Applying this rule in the construction context, truly accidental property damage generally is covered because such claims and risks fit within the statistical abstract. Conversely, faulty workmanship claims generally are not covered, except for their consequential damages, because they are not fortuitous. In short, contractors' "business risks" are not covered by insurance, but derivative damages are. The key issues are whether the contractor controlled the process leading to the damages and whether the damages were anticipated.

(Emphasis in original), id. at ' 13.³

Custom Agri concerned a construction contractor seeking coverage from its carrier for claims arising from its own work. In applying the fortuity doctrine, the Ohio Supreme Court held: "In keeping with the spirit of fortuity that is fundamental to insurance coverage, we hold that the CGL policy does not provide coverage to Custom for its alleged defective construction of and workmanship on the steel grain bin. Our holding is consistent with the majority of Ohio courts that have denied coverage for this type of claim. The majority view is that claims of defective construction or workmanship are not claims for "property damage" caused by an "occurrence" under a CGL policy." 2012-Ohio-4712 at ' 14 [collecting cases].

That there is a fortuity element of insurance is not controversial, and indeed, not unique to Ohio.⁴ Rather, what is controversial is where the doctrine is defined or otherwise memorialized in the language of CGL policies. For years, there was at least a tacit understanding that the doctrine was spread out throughout the policy ' some parts of it in the coverage grant, and others contained within the business risk exclusions. Custom Agri,however, concentrated the fortuity doctrine within the definition of an "occurrence," relying on an opinion from the Supreme Court of Kentucky in doing so.⁵

Moving the fortuity doctrine to the coverage grant and incorporating it within the definition of an "occurrence" has distorting effects in the policy, as can be seen in Ohio...