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 11th 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 Northern Univ. v. Charles Constr. Servs., the highwater mark of the fortuity doctrine in Ohio.6 Ohio Northern concerned the alleged deficient construction of an inn and conference center which resulted in water damage caused by a subcontractor's work. The general contractor's insurance carrier intervened in the case, seeking a declaratory judgment that it had no duty to defend. The Ohio Supreme Court again addressed the fortuity doctrine, ultimately finding that the subcontractor's faulty work was not an "occurrence" under the policy "[b]ecause it cannot be deemed fortuitous[,]" and thus the damages did not fall within an exception to the exclusion for damages caused by subcontractors.7
In reaching its holding, the Court commented that "[t]he general principle underlying CGL policies is that they are not intended to protect business owners from ordinary business risks." (Id., at ? 14). The Court went on to define ordinary business risks as "[n]ormal, frequent or predictable consequences of doing business that the insured can manage." (Id., at ¶ 29).8 Within this context, the Court concluded the subcontractor's faulty work was an ordinary risk, and therefore, the loss was not fortuitous. (Id., at ¶ 27). In doing so, the Ohio Supreme Court acknowledged a departure from other cases outside Ohio in its treatment of the work of subcontractors and the fortuity doctrine. (Id., at ¶ 31) [collecting cases].
Predictably, following Ohio Northern, insurance companies started relying on the loose fortuity doctrine to deny a variety of different types of claims. Fortunately, with the Ohio Supreme Court's 2022 decision in Motorists Mut. Ins. Co. v. Ironics, Inc.,9 the Court seems to be reining in such attempts to avoid coverage. There, the Ohio Supreme Court found an occurrence (or accident) where contaminated materials were unknowingly provided by a third-party and were incorporated into a final product rendering it unusable. In reaching its holding, the Court commented "[a]lthough [Custom Agri & Ohio Northern] make clear that Ironics would not be entitled to coverage if Owens simply sought damages for the cost of procuring replacement tube scale, the damages sought by Owens clearly go far beyond that. They are based on the damage caused to Owens's containers, including the loss of the other components of the containers when the containers were scrapped." (Id., at ¶ 68). Ironics further notes a directional change from the Ohio Supreme Court compared to Ohio Northern, wherein the Court heavily examined and followed majority positions outside of Ohio.
Custom Agri and its progeny still leave policyholders guessing as to the scope of the fortuity doctrine. In most contract dispute and interpretation contexts, courts look to the language contained within the four corners of the document, resolving any ambiguity against the drafter. Why is it then for CGL policies, the definition of what constitutes an "occurrence" is being developed within the common law? The way to give clarity to policyholders and insurers is to require these contracts to articulate and define the covered risks, putting the "control" aspects of the doctrine back into the business risk exclusions.
Footnotes
1. Westfield Ins. Co. v. Custom Agri Sys., Inc., 2012-Ohio-4712, ¶ 13, 133 Ohio St. 3d 476, 481, 979 N.E.2d 269, 273.
2. Hybud Equip. Corp. v. Sphere Drake Ins. Co., 64 Ohio St.3d 657, 666, 597 N.E.2d 1096 (1992).
3. quoting JTO, Inc. v. State Auto. Mut. Ins. Co., 194 Ohio App.3d 319, 2011-Ohio-1452, 956 N.E.2d 328, ¶ 32–33 (11th Dist.).
4. Natl. Union Fire Ins. Co. of Pittsburgh, PA v. Reichhold, Inc., 1:06CV939, 2009 WL 3125483, at *4 (M.D.N.C. Sept. 30, 2009).
5. Custom Agri Sys., Inc., 2012-Ohio-4712, ¶ 13, citing Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 74 (Ky. 2010), as corrected (July 19, 2011).
6. Ohio N. Univ. v. Charles Constr. Servs., Inc., 2018-Ohio-4057, 155 Ohio St. 3d 197, 120 N.E.3d 762.
7. Id., at ? 3.
8. Citing Westfield Ins. Co. v. Custom Agri Sys., Inc., 2012-Ohio-4712 at ¶ 10.
9. Motorists Mut. Ins. Co. v. Ironics, Inc., 2022-Ohio-841, 168 Ohio St. 3d 467, 200 N.E.3d 149.
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